Irish Opposition Would Like To Compensate Eircom Investors

by Jason Gorringe, Tax-News.com

24 January 2002

Irish politicians are still hoping to make political capital out of the losses sustained by 400,000 taxpayers who bought supposedly 'overpriced' Eircom shares when the state utility was privatised in 1999, only to see them forcibly acquired at a much lower price by Sir Anthony O'Reilly's Valentia consortium in August 2001.

Opposition party Fine Gael's plan to offer tax write-offs to hundreds of thousands of Eircom shareholders has been rejected as unworkable by the Taoiseach, Mr Ahern, and greeted unenthusiastically by the Labour Party. Under the proposal, over 400,000 taxpayers would recoup 20 per cent of their Eircom losses by offsetting them against their annual tax bill, at a maximum cost of EUR90 million.

The unprecedented move was justified because the Government set the price of Telecom Eireann stock too high and failed to reveal that the company's board preferred a lower price, said the Fine Gael leader, Mr Michael Noonan. Insisting the proposal was 'fair and equitable', he said the public had been 'conned' by the EUR90 million advertising campaign orchestrated by the Government.

But the Taoiseach, Mr Ahern, said Fianna Fail had examined the idea late last year, but decided that it could not work because it would create a number of tax anomalies. 'Any proposal deserves an examination of it, but I don't see how you could actually do that without including everyone and everything in it as well,' he told The Irish Times.

The plan does indeed raise some difficult issues. What would it mean for future flotations of State-owned companies? Would the precedent oblige future governments to compensate retail investors if share prices fell? The Fine Gael refund is based on an assessment that the Government 'seduced' investors into buying Eircom shares while concealing from them the information that the Eircom board had recommended a price lower than the EUR3.90 flotation price. If Fine Gael enacts legislation to make the refund, could this admission by the State lead to a spate of compensation claims from former Eircom shareholders for far more than their investment loss?

The Labour Party refused to comment publicly on the Fine Gael proposal, but a number of sources doubted if it could or should be made to work: 'It isn't a runner, I believe,' said one TD involved in drafting Labour's own manifesto. Asked if Labour would negotiate on the issue in coalition talks, a party source, speaking on condition of anonymity, said: 'We are not going to respond to everything that they do between now and the election.'

Rejecting the claim that Fine Gael was trying to 'buy votes', the party's finance spokesperson, Mr Jim Mitchell, said: 'We are making no apologies for it, and we hope that Labour will see the sense of it. This is one of the fundamental proposals that we want included in a programme for government. And we will be fighting to ensure that it is included.'

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