IMF in town

So the IMF and the EU are in town, sackcloth and ashes for all. The talk is of cuts all round, nothing to be spared, not even that which we consider to be most sacred, although the feeling on the ground is that Comet and Vixen are set to apply for voluntary redundancy.

Public sector jobs to go, thousands of them, 28,000 of them, some say, and the half-hour bank time is to be scratched, God help us. The old age pension is set to be levied, unless Deputy Noel O’Flynn gets his way, and if you own the house in which you live, you can expect to be paying for that luxury, even if you did pay a whack of stamp duty when you bought it.

You will have to have a 14th child before you qualify for children’s allowance, and you can forget it if you think that the government is going to continue to pay your crèche fees. Social welfare payments and minimum wages are to be reduced and income taxes are to be increased. Read my lips: austerity is the new four-bedroom semi-detached house in Longford.

We don’t know for sure where racing fits in with the IMF’s plans, but it would not be surprising if it didn’t fit in at all, if it simply didn’t feature. It is difficult to present the case to garner funding for the pursuit of racing horses from one point to another in the name of entertainment, in the name of sport – the Great Triviality, according to the late Phil Bull – when the list of alternative uses for the same funding includes hospitals and schools and unemployment benefit.

That said, racing should not be apologetic in its demand for funding. In any economy, even one in deep recession – or especially one in deep recession – expenditure is key. As has been argued and explained on innumerable occasions in the past, racing is not only a sport at which Ireland excels internationally, one in which it is a genuine world leader, it is also a key indigenous industry. According to the Dukes Report of last year and the McCarthy Report of last month, the Irish racing and breeding industries employ about 14,000 people directly, a figure that does not include those employed indirectly in ancillary industries or, significantly, those employed in the betting industry.

We are all very aware of the stark decrease in Government funding to the Horse and Greyhound Fund of late, from €76.3 million in 2008 to €68.1 million in 2009, to an expected €59.3 million in 2010, a decrease of over 22% in two years.

The fact that the betting industry’s contribution to the Exchequer decreased to €31 million last year has not helped. One of Horse Racing Ireland’s primary objectives is to have the funding for racing linked to the tax revenue from betting, which makes sense given that the McCarthy Report estimates that 85% of all betting in Ireland is on racing. However, Paddy Power say that only between 10% and 15% of their total turnover is on Irish racing. The funding of racing in other jurisdictions is provided by betting revenue, but Ireland and the UK are unique in that there are licensed betting shops here, private operators who answer to shareholders and their own boards of directors, and that presents a raft of issues, as has been obvious in recent weeks.

That said, there has always been an inextricable link between betting and racing, and HRI have a fair case. Even given that, however, there is a significant shortfall, a government contribution of €59 million – which was in itself a disappointment, and necessitated cuts across the industry – offset by betting revenue of a mere €31 million. That leaves a €28 million gap that needs to be bridged even if HRI succeed in proving their case.

The McCarthy Report’s proposed remedy is the one that has been generally touted since last May, when Brian Cowen said that there was a solution forthcoming: bring off-shore and on-line betting into the tax net. Specifically, McCarthy proposes increasing off-course betting tax in Ireland to 2% on turnover, but also imposing a similar tax on bets placed on-line or over the telephone with companies who have their servers based off-shore. This would be achieved by means of a licensing arrangement, whereby all betting operators who were active in the Irish market would have to be licensed, and would pay 2% of turnover from Irish-based bettors.

On the face of it, it looks plausible. The vast majority of on-line betting by Irish bettors is with tax-compliant companies. The total amount bet by Irish bettors annually is estimated at €4.5 billion. A 2% tax would ostensibly generate €90 million, although McCarthy does recognise that the actual tax revenue would fall short of that primarily because of a price elasticity effect (less turnover because of more tax) and because of teething problems involved with actually collecting the tax. Nevertheless, it is estimated that between €60 million and €70 million could be collected, and that would be a significant figure.

The Irish Bookmakers’ Association initially appeared to be happy with the proposal, Betfair want to be compliant, while Paddy Power have always said that they would be happy to contribute as long as the tax was fair and equitable.

At last we seem to be getting somewhere.

© The Racing Post, 23rd November 2010

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