EU rules out tax on bank profits, says McCreevy

Bank profits cannot be tapped as a source of supplementary non-tax revenue for the Exchequer because of EU rules on state aid, the Minister for Finance said yesterday.

Mr McCreevy was explaining why he had chosen to base his €300 million levy on financial institutions' deposit bases instead of their profits.

He told the Dáil Select Committee on Finance and the Public Service that a tax aimed at the profits of one sector would be open to challenge under EU law because it could constitute an illegal state aid to other parts of the economy.

"This is not a state aid because it's not a levy on profits," he said.

The Government's experience of getting approval for a 12.5 per cent corporation tax rate at EU level showed no sector could be singled out for "a particular rate" of tax, said the Minister.

"We are conscious of the difficulties with Europe regarding making any changes in corporation tax," Mr McCreevy said.

He was responding to queries on the levy from Mr Dan Boyle of the Green Party and Fine Gael finance spokesman Mr Richard Bruton, who questioned the legal status of "this rolling highwayman approach to banks". The decision to calculate the charge according to the Deposit Interest Retention Tax (DIRT) payable by each bank in 2001 had been made "so we'll know exactly how much we'll get". "The main reason was that we had the DIRT figures," he added.

A historical base was also chosen "so there can be no manipulation", according to the Minister.

The levy, designed to raise €100 million for the Exchequer over each of the next three years, has met fierce criticism within the banking sector.

Mr McCreevy said he was not "singling out" banks with the levy, which he believes can be more accurately described as a "stamp duty". "I do think Irish banks have done a good service here," he said.

The Minister added that he was keen to see Irish banks remain in Irish ownership. "It's important that the Irish banking system should be owned and managed from here," he said.

Sinn Féin's finance spokesman, Mr Caoimhghín Ó Caoláin, said the banking sector was "laughing up its sleeve" at the "minuscule" amount payable in the levy.

The Minister said that, while he did not personally meet bankers on the issue after the Budget, his officials had done so and the meeting had not been a laughing matter.

"They think this is serious," he said, advising that banks should "pay up and look happy".

He went on to rebuff suggestions from Mr Bruton that banks could feel justified in passing on levy costs to customers through increased charges.

He also restated his intention that the levy should be a temporary measure.

The committee rejected an amendment to the Bill from Mr Boyle, which would have seen the annual levy being extended indefinitely.

Revised expenditure plans presented to the Dáil yesterday show the Government will spend €170 million more this year than had been indicated in last December's Budget. The spending rises which come across a range of departments, will be largely offset by new sources of income, such as an increase in the TV television licence fee and unexpected EU receipts.

An additional €44 million will be drawn from the Social Insurance Fund as a result of amended redundancy arrangements agreed in partnership negotiations.

Preparation for the Republic's presidency of the EU next year will cost €16 million, according to the revised estimates.