Noonan says Government committed to legislate for limit to State borrowing

TRANSACTION TAX:IRELAND IS committed to bringing in legislation this year to limit the capacity of the State to borrow in the future, according to the Minister for Finance.

Michael Noonan was commenting on the proposal by Germany and France for constitutional limits on borrowing across the EU.

Mr Noonan said that constitutional change was a matter for consideration by the Government but he pointed out that it was already committed to legislation to limit budget deficits to give the public protection against reckless governments in the future.

“It would make the administration of annual budgets quite difficult if it was brought in too tightly,” he added. Mr Noonan denied the proposals would result in Ireland ceding sovereignty to France and Germany.

“It would be giving the Irish people and the people in other European countries very strong sovereign rights to impose borrowing limits on their governments.”

Mr Noonan said on RTÉ that any financial transaction tax would have to apply across all 27 EU states and could not be limited to the euro zone. “We can’t have a situation where there is a transaction tax in Dublin and there is no transaction tax in London.”

He said there would be a lot of objections from countries with strong financial services industries such as Luxembourg, the Netherlands and even France.

A body representing the Irish financial services industry said yesterday the proposed tax would “undermine Europe’s competitiveness”.

Brendan Bruen, director of Financial Services Ireland, said the proposal did not make “an awful lot of sense” and would not achieve its aims in terms of regulatory and fiscal stability. Instead it would damage, not just the competitiveness of Ireland, but of Europe, by incentivising the transfer of transactions out of regulated European centres to offshore centres such as Bermuda and Singapore, he predicted.

A spokeswoman for the Irish Banking Federation said that while a full assessment of a transaction tax could not be made yet, the principle of such a tax would be “strongly opposed” by the banking sector, not just in Ireland but across Europe. The Association for Financial Markets in Europe, which represents large banks, advisers and brokers, worried the tax would hurt companies and crimp economic growth.

“Many financial transactions are carried out on behalf of businesses that would bear the cost of the additional tax,” the association said.

The British Bankers Association lobby group said: “The UK has taken the position that such a tax would only be viable if implemented on a global scale. Otherwise the consequences would be a distortion in the global markets.”

European Central Bank president Jean-Claude Trichet has said in the past that unless such a tax was introduced globally, it would not work.