Levy is inexplicable
We do not wish to add to the chorus of self interested, sectoral, and sectional comment that usually precedes and follows annual budgets - and the spirit of our comments are not so based - even though we fundamentally abhor the singling out of the financial services industry in the budget, which we as a publication of course serve.
But first let’s give credit where it is due. The Budget did attempt to shield income, and therefore work from impositions to some degree, and for that we would applaud the Government. Also, the reduction in ‘expenditure’ to lower levels than expected pre budget was a relief - although much of it consisted of cuts in capital spending and increased charges. Increased charges are itself a form of taxation - indirect, let it be said, instead of direct, which leaves workers with no option but to pay it, unless they choose to avoid it by working, and earning less.
On the minus side is the playing of the Government to the economically illiterate culture that has crept up on our economic politics that betrays no understanding at all of the fact that all wealth, and all income derives from work and effort. That there is no pot of gold at the end of the rainbow that Governments, can dip into at will. The pandering to this notion, both in the run up to the election, and now, is leading to a corrosion of the Irish economy that is sending out gradually a drip-drip signal to the private sector both domestically and internationally - that they are somehow not welcome in Ireland. To be sending out such a message at this fragile time for Ireland as an international investment location is a negative for the future welfare of the economy.
One of the key sectors that have created the wealth of the Celtic Tiger was the financial services sector. Why is should be signed out for special punitive, and ‘punitive’ is the apt word for it, is inexplicable. Why not a special levy on pharmaceuticals, or IT, or drink, or tobacco ? The message unfortunately is another blow to the financial services industry which was painstakingly built up in this country from the late 1980s onwards. While the Minister for Finance Charlie McCreevy succeeded to a large degree in restoring stability to the public finances in Budget 2003, his Budget will not be remembered for being a particularly business friendly one.
Capital allowance changes will reduce the incentive to invest and the extra stamp duty on investment property will act as an additional disincentive to expansion. Moreover, inflation is set to rise even further in the aftermath of the Budget and may surpass 6 per cent in January. This will erode competitiveness and increase costs all round. But the least business friendly move of all is the levy imposed on the financial services sector.
The levy, which is fixed at euro 100 million per annum, is to be obtained from the financial sector for the three-year period 2003 to 2005. This levy is inexplicable in its singling out of the financial services sector, which is a significant contributor to the Irish economy and is an unfortunate reminder of the bank levy that was first introduced temporarily about 20 years ago and was finally phased out in 1997. Writing on this page, Colin Hunt, research director with Goodbody Stockbrokers, calls the move ‘ludicrous’. He argues that the levy is particularly unfair when compared to the treatment of the bloodstock industry, which makes a far less significant contribution in both employment and value-add terms to the Irish economy. In KPMG’s Tax Monitor column on pages 8 and 9, questions are again raised about the discriminatory method used by the Minister to boost the state’s coffers and it is pointed out that while the Minister has wide powers under the constitution to exercise discretion as to whom he taxes and whom he does not tax, that power should not be used arbitrarily or irrationally.
The industry have already begun to protest against this move and on page 1 we report on the Irish Bankers’ Federation (IBF) and Financial Services Ireland (FSI), who are both seeking urgent meetings with the Minister to discuss the implications of the tax.
Concerned about the ramifications this levy will have, Aileen O’Donoghue, director with FSI says, ‘this proposal will send out a very negative signal internationally about the Government’s attitude to the financial services sector’. |
