Speech by Minister for Public Expenditure and Reform, Brendan Howlin, TD
Irish Taxation Institute Annual Dinner
Friday February 24th 2012
Good Evening Ladies and Gentlemen. I am delighted to join you here this evening.
As you know I am here in the place of my colleague Michael Noonan who has suffered a terrible loss. I know our thoughts are with him and his family this evening.
I would like to take the opportunity this evening to share with you some insights into the Government’s approach to the recent tax changes in the Budget and Finance Bill. I certainly don’t need to explain any of the technical aspects of the tax measures to this audience but I thought it might be useful to set out the overarching context in which the measures were developed.
As you are aware the Government is now approaching the conclusion of our first year in office. We took office a mere few months after the country had been forced to enter an externally supervised programme. Commentators not only questioned our capacity to adhere to that programme they wondered too about the long term viability of the state.
Thankfully I sense that that panic has abated. We are undoubtedly still in a difficult place but a sense of stability has been restored. Interest rate reductions in our programme loans and a credible banking strategy, far cheaper than that envisaged in our programme, have been key factors here.
Our aim is a simple one – we wish to reassert our economic sovereignty and to be the first country to exit a programme of assistance.
There is evidence that our public finances are showing signs of improvement after a number of very difficult years. Last year’s General Government deficit is likely to have been below the 10 per cent of GDP mark and well within the 10.6 per cent of GDP limit set upon entry into the EU/IMF Programme in late 2010.
Last year, tax receipts rose for the first time since 2007 while the voted expenditure of Government Departments was well within the limits set out, demonstrating the effective management of public expenditure which characterised 2011.
Just last month we concluded another successful quarterly review mission with our EU/IMF partners. All of the quantitative fiscal targets set as part of the Programme have been adhered to. The Programme is on track and we are making progress.
Turning briefly to the macro-economic situation, it is always heartening for me to repeat that the Irish economy has returned to economic growth! It is expected that the growth outturn for 2011 will be around 1%.
The external sector is leading the recovery, with exports of goods and services now well in excess of pre-crisis levels. This shows that the improvement in competitiveness, which has been evident in recent years, is standing to us.
We need now to refocus our efforts on the domestic economy which has been understandably affected by the fiscal contraction of recent years. A key element of our Budget strategy last year on the tax side was to provide the continuity required to restore consumer confidence. We need now to look to measures that stimulate demand albeit within the confines of our overriding programme targets. Securing a potential €1bn for productive domestic investment from our existing troika asset proceeds commitments is a good start. So too is our determinate to leverage the National Pensions Reserve Fund to a Strategic Investment fund of €1bn. The NPRF too will be used to fund, on a commercial basis, our water metering programme. We need to do more in this regard.
Obviously as a small open economy whose recovery is being driven by exports, we will be affected by the difficult patch that the global economy is going through. Notwithstanding this uncertainty, I would emphasise that all forecasters, both institutional and private, expect that Ireland will record positive GDP growth again in 2012. Anticipated improvements in the external environment from 2013 onwards should further boost export growth and as this ultimately feeds through to investment and employment, consumer confidence is expected to return and the savings rate should start to unwind somewhat. So, what we expect to see is economic activity beginning to gradually firm and broaden out – from being externally-driven to domestic demand also making a modest contribution.
As I have just mentioned, we are not immune to external factors, not least European ones.
Reaching agreement on 30 January on the new European Treaty was an important milestone. I must emphasise that it is but part of the jigsaw, part of an overall strategy to stabilise and grow the European economy.
While much – if not most – of the Treaty is already provided for in the EU Treaties and EU law, it takes this onto a new level in ensuring that everyone will play by the rules. This has been an important consideration for Ireland. We are a small Member State in a common currency. Our economic recovery and future wellbeing depend heavily on the reputation of our currency. And we’re very satisfied that Irish interests and concerns were reflected in the final text.
With the ESM Treaty also agreed and the second Greek programme put in place earlier this week, the stability and clarity these must allow us to focus again on the growth, jobs and investment essential to resolve the European debt crisis.
We must and will maintain Ireland as the premier choice for foreign direct investment in Europe by major global companies. We’re often the only EU location considered by such companies, so a win for us is very much a win for Europe.
In this regard, there is no doubt that a competitive tax framework which encourages foreign direct investment has been at the core of this country’s enterprise policy for over 50 years and remains just as critical today.
According to the recently published World Bank Report – Paying Taxes 2012 – the Global Picture – Ireland is the easiest country in Europe to pay business taxes for five years running and the fifth easiest country in the world. So we are starting from an excellent base but we are not complacent.
Budget and Finance Bill 2012 demonstrated the Government’s strategy of taking what limited resources we have to develop specific targeted measures. These measures are focused on areas where the best employment potential and returns for that investment of public money will be delivered. They are designed to support SME’s, indigenous companies and large multinational companies. This is in line with the Taoiseach’s vision to help Ireland become the best small country in the world in which to do business.
The Bill should be viewed as one element of a wider strategy to support economic activity. My colleague, the Minister for Jobs, Enterprise and Innovation set out a wide range of proposals in the Action Plan for Jobs which was published last week.
In order to support growth and jobs in the FDI and exporting Sectors the Minister for Finance introduced:
• The Special Assignee Relief Programme, and a
• A Foreign Earnings Deduction to support companies who are promoting Irish exports to Brazil, Russia, India, China and South Africa – the so-called BRICS countries.
Furthermore, I understand that the Minister for Finance proposes to amend the Special Assignee Relief Programme at Committee Stage of the Finance Bill to remove the requirement that a benefitting individual can only spend 30 days outside the country in the performance of the duties of their employment, and extend the range of countries from which an individual may be assigned to include those with which the State has a Tax Information Exchange Agreement. These changes will ensure that the scheme does not exclude potential assignees that could equally contribute to the creation and retention of jobs in Ireland.
A separate amendment is being proposed to the Foreign Earnings Deduction to reduce from 10 to 4 the number of consecutive days of presence required in a single trip, in order for that trip to qualify towards the overall minimum 60 day requirement. The amendment recognises that broader trade missions to Asia or South America for example, might only include 5 days of presence in Brazil or China, and these visits would not qualify for the relief under the legislation as published.
A range of new measures to boost the Research and Development tax credit are also being made, particularly focused on the small business sector. Specifically:
• The first €100,000 of qualifying R&D expenditure of all firms will qualify for the tax credit and will not have to meet the requirement to be incremental to expenditure in the base year (2003), making it easier for small and medium-sized companies, in particular, to claim the credit,
• Outsourcing limits are being amended to benefit small and medium-sized companies; and
• Use of the R&D tax credit to reward employees should also help small companies retain key talent.
In order to support the job creation goals contained in the Strategy for the International Financial Services Industry in Ireland 2011-2016, the Finance Bill contains 13 sections and 21 individual measures to enhance the competitiveness of that industry. Given resource constraints and ever-present reputation concerns, we have had to be creative. The measures focus on:
- · reducing double taxation,
- · simplifying the tax treatment of complex financial transactions and
- · easing the administrative burden for business
We hope that these measures will be hugely beneficial in terms of demonstrating the commitment of the Government to supporting industry and making it even easier to do business in Ireland.
In addition the Finance Bill widens the scope of Revenue Job Assist to allow those that are unemployed for longer than 12 months, who sign for PRSI credits but are not entitled to a payment from the Department of Social Protection to also qualify for the scheme.
It is heartening to hear that all of the leading professional services firms are recruiting heavily from third level colleges and universities and that major Irish companies and multinationals are recruiting qualified tax consultants.
The Institute is to be commended on its commitment to the high quality of education that it provides to its students and indeed the ongoing professional development it provides to members. In that regard, I am delighted to hear the announcement of the new Chartered Tax Adviser global status for over 4,000 AITIs. I understand that the brand is the gold standard in tax internationally and is a significant step for the tax profession in Ireland given the growing global environment in which we work and do business.
Tax policy remains an important tool of enterprise policy – not only for attracting FDI but also in encouraging Irish job creators and entrepreneurs. Tax professionals have a key role to play in informing policy-making as they have valuable insight into the impact of the tax system on both enterprise and citizens.
I understand that the Department of Finance has developed, in partnership with the Irish Tax Institute, a new Certificate in Tax Policy and Practice which was launched in May this year. This represents a major new initiative in tax education in Ireland.
This collaboration is unique in drawing on the knowledge of both the Department of Finance team and experienced practitioner members of the Institute. Designed specifically for participants from the Department, this certificate supports an in-depth knowledge of policy formulation, choices and implementation decisions and could be a good model for other educational collaborations.
As Minister for the new Department of Public Expenditure and Reform one of my jobs is to convince citizens and businesses that tax is an investment in the future of the State rather than a penalty or something to avoid. We have set out an ambitious and far reaching programme of reform which I am determined to see through. For all its faults our public service is now dealing with a significant increase in activity against the backdrop of reduced remuneration and falling numbers. A private sector CEO would, I suspect, be quietly proud of such an achievement.
Perhaps we might even get to a point where the social democratic trade off between taxation and services that exists in the north of Europe might permeate the Irish consciousness. As a social democrat, I am entitled to dream.
Finally, I would like to thank Bernard Doherty – the new President of the Institute – for inviting me here today and I wish you all every success in the future.