IFSC faces ‘radical rethink’ as effects of crash become clear
Global financial crisis place financial services centre at a crossroads
It started in the 1980s as an idea promoted by financier Dermot Desmond and came to life through tax breaks and legislation enacted by former taoiseach Charles Haughey.
Since 1987, the International Financial Services Centre has been one of the success stories of the Irish economy over the past quarter of a century and was a key plank in modernising the economy and attracting high-end foreign direct investment.
It contributes more than €2 billion to the exchequer each year and employs about 32,000.
But the global financial crash in 2008 and other factors have inevitably affected the IFSC and placed it at a crossroads in terms of its future development.
This is highlighted in an internal position paper produced by the Department of Finance last year by Neil Ryan, a former banker who is now assistant secretary in the department and who was seconded to Irish Bank Resolution Corporation for a period. It highlights the challenges facing the IFSC and makes eight proposals that could help it grow.
The document has been seen by The Irish Times and states that the IFSC’s “offering” needs a “radical re-think”.
While the IFSC remains an “important” part of the financial landscape here, the global crash in the sector has resulted in some companies winding down their operations and others shedding jobs.
This has resulted in a lower corporation tax take and it is “unlikely that new capital will be invested in the banks”, according to the document.
It said the IFSC was becoming more reliant on a “small number of banks for the bulk of the jobs”.
Middle- and back-office operations are maintaining their position but “offer lower wages [and therefore lower tax take] to the exchequer”.
According to the document, the contribution from each banking job in the IFSC is roughly the equivalent of two jobs in each of the other activities carried out in the centre.
According to an FSI Accenture report from September 2010, the annual payroll generated by banking activities in the IFSC amounted at the time to €738.8 million out of a total of €1.966 billion for the centre as a whole. In the two years up to the publication of the position paper, 186 jobs had been lost at IFSC companies while another 409 were in companies in some form of wind-down, including DePfa, Dexia, DZ Bank and EAA Bank.
The document said the trend of banks in wind-down mode was “unlikely to be staunched in the short term”.
It also noted the challenge posed by moves towards tax harmonisation in Europe and the “potential tightening of US tax rules”.