Rose Conway-Walsh: End Deemed Disposal to Grow Household Savings

Thank you very much for your opening statement. I suppose one of the questions I want to go to is the deemed disposal rule and your request there for additional tax incentives. What evidence can you provide that benefits would flow beyond the financial services sector? So if we already have 70% of the market, obviously things are going quite well, just what evidence would you have? I suppose I'm looking at all of this in the context of the last budget where there was no tax incentives for workers, for ordinary workers who are really struggling. So I want you to justify why you would put forward a proposal for further tax incentives when you already have 70%? Just make it. So Deputy Baby, I might start and I'll go to my colleagues. So the 70% number represents the fact that here in Ireland we have located and domiciled 70% of the exchange traded funds that are used by investors right across Europe. So that is about a capability that exists here that is used and exported because we are an export services industry right around the world. Now those same solutions would also be available to Irish investors but because deemed disposal applies to exchange traded funds in ways that doesn't exist anywhere else, where these are very successful, where they're very investor friendly, it means that we have not seen the type of take-up and you have deemed disposal which means that the primary reasons for investing in markets over time is to get the benefit of compounding. The deemed disposal rule effectively decreases the amount of money that people are accumulating over the life of their investment and it's actually also destroying value. So when we talk about it's actually removing an existing barrier, an existing disincentive and we are encouraging people by a lower tax rate on deposits at 33% than we are actually with ETFs. That's just by way of opening. I'll let my colleagues again come in to augment that. Perhaps I'll come in on that because this has been something that I'm quite passionate about. When you look at other countries, you compare us to other countries, what we're trying to do at two levels is first of all improve financial literacy, number one, throughout the country. Secondly, improve the outcomes for households throughout the country. If you look to other jurisdictions such as the UK, I call it they have a three-legged stool approach. They have a pensions system which we have and a very good one and we have auto enrolment now which is so important for the financial futures for our citizens. They have a second which is their ISA, their incentivised process to get people saving and investing and on the third leg of that, they have absolute clarity around when you invest. It's very simple, it's straightforward. They have two rates of capital gains tax, a higher rate for higher earners, a lower rate for lower earners. It's very, very simple. Second point then is when you come to the Irish system, you talk about deemed disposal, when you explain to people what they're going to do with their after-tax income, we have to remember that we're encouraging people to take money they have paid tax on and instead of using it for a holiday, instead of using it for a car, to invest that. There's two parts to that. The first thing is if they invest it with deemed disposal, every eight years they have to go and find tax to pay on that amount. That lowers the performance of their return. It lowers the amount they have in the market which ultimately lowers their ultimate end return. So actually citizens are getting a lower return over time. As a result, the state is actually consequently getting a lower return because it's taxing a smaller pot all the way up. The other example I'd give, because I'm all about small amounts leading up to greater outcomes for citizens and the country. If you take April 2007 when the SSIA scheme finished, if each individual who was in that scheme, 1.3 million of our citizens, had invested 100 euros a month into a global market product, depending on which market, there would be somewhere between 50 and 90,000 sitting having accrued to those citizens. That's from 100 euros a month. To the state, it would be somewhere between 50 billion and 90 billion of accrued gains, which is taxable at a rate of 33%, 38%, whatever that might be. The important thing for me is that small amounts over time accrue. Deputy, to your point in terms of what that would do for the country, if we look over that 20-year period, today we would have households who would have money to invest in their businesses, to invest in their homes, to go on a cruise, whatever it may be for them. This is the piece, it is an issue we have as a country, we haven't enabled people to take advantage of the benefits of investing for their future outside of their pensions wrapper. The pensions are great, but they're long term. We need people to be able to think in 10, 20, 30 years accessing capital. Deemed disposal reduces that ability. Without being repetitive, financial literacy generally, again in working class, I come from Finglas on the north side, I do financial literacy in Finglas, one of the phrases I hear all the time that I brought into this room recently is cash is king, a phrase used in the working class population of Dublin a lot. It's not. The tax incentives that we're saying to get to investment is actually a financial inclusion measure rather than an industry benefit. People are in cash while it's eroding in inflationary environments when they should be in long-term investing. Without the deemed disposal revisions, it's difficult to make a financial inclusion case to actually invest and not stay in cash. So it's a for everybody measure, not for a select few. But when people are really struggling, and I suppose you're in a climate of where 317,000 people are behind with their energy bills, to then say, well really the solution to that is financial literacy is hard to reconcile. It's not really because if we had a culture and a narrative that actually long-term investing, over-saving, when you have the fuel bubble, we'd be collectively all the way up and down the spectrum in a better financial condition. I just want to go on to the regional, you described the funds industry as supporting jobs in every province and contributing strongly to the wider economy. Can you just give me some examples of that? I'd be happy to start. So of the 19,500 people that are employed in the industry, the last time we did an economic impact assessment, 46% of those people live outside of Dublin. So if you look at it from the point of view of, I think Andrea mentioned Donegal, so in Donegal we have PGM, have over 200 people in Letterkenny. In Limerick, Northern Trust are employing somewhere in the region of 1,200 people coming from 11 different counties. You go down into the Cork region where we'll be tomorrow, you obviously have something in the region of about 1,490 people in the region there. Kilkenny, obviously in the eastern part of the country up along the east coast as well. So what we found, and this is why it's core to this competitiveness point, people came to Ireland originally when the IFSC was conceived almost 40 years ago. And the activity was very much constrained to a very specific geographic location. That is not the case anymore. In fact, some of the biggest employers, some of the fastest growing employers are utilising the skills and the strength of regional skill bases that are coming through our universities and our technical universities with very, very close alignment between those firms. So the growth case for our industry, as has been proven in the last 10 years in particular, is that if we can create conditions which are conducive to competitiveness around both the offering and the environment, firms will grow and they in a number of cases will set up second sites and indeed they will look to find centres of excellence for their activities. Okay, I know my time is up.