The Irish government apparently decided to accept without
question the claim that a greater incentive was required to
48 1972.
see, for example. Bail Debates, 3, 23 May 1967 and 29 June
^^ see the statement by the then Minister for Finance on pp.64-5
above; interviews with officials of the Department of Industry
and Commerce and of the Geological Survey Office, 24 October,
ensure maintenance of production and continued investment in exploration. If the Minister of Industry and Commerce had consulted his departmental officials, they would have pointed out to him that what the mining companies wanted was not
necessarily what was required to ensure their continued
involvement. That he failed to do so is clear evidence of the automatic way in which government policy responded to the
demands of foreign mining companies.
It seems likely that those same companies played a role in fostering and enforcing the attitudes discussed above. It is very difficult to present conclusive information concerning the impact of foreign investors (or, indeed, of any investors) on the outlook and attitudes of politicians. The latter will rarely admit to being influenced by the representatives of corporate interests, while foreign investors are loath to
acknowledge they possess influence over decision-makers in the host country. This has certainly been the case in Ireland. Yet it is not possible to ignore this issue simply because relevant documentary evidence is not available.
In the Irish case, it is quite clear that close relation- ships existed between various politically influential
individuals and officials of foreign mining companies. The President of the Northgate group, for instance, was a personal friend of the Deputy Leader of the Labour Party, and of a number of senior Fianna Fail ministers. A Northgate official informed me that its President rarely contacted a civil servant
concerning any aspect of the group's operations over the period from the early 1960s to 1973: he had immediate and continual access to senior members of the governing Fianna Fail
Party.^^ These relationships were probably strengthened by the fact that a number of family relations of senior
politicians were employed by foreign mining companies. (This is not to suggest that any of the individuals involved were not qualified for the positions they held). For example, the
son of the Deputy Leader of the Labour Party became Secretary of Tara Mines Limited (an associated company of Northgate's), while the brother-in-law of the current Minister for Industry
and Commerce was also employed by Tara.
Without engaging in speculation, it can be said that relationships of the type described above might have acted as a channel for ideas and opinions and represented a means by which influence could be exerted.
Did foreign mining investment generate the economic benefits expected of it? The following sections examine the economic impact of foreign-financed mining projects over the period 1964-77. In certain instances, data required for analysis of the non-ferrous mining sector as a whole could not be obtained, and in these cases the operations of the Northgate group (concerning which information was available) are analysed separately. The conclusions derived from such an analysis are probably valid for the sector as a whole, as the other projects (Silvermines, Avoca) were similar to Tynagh and Gortrum in the mining techniques employed, in the materials
produced, in the extent to which they were foreign owned, and in being entirely financed by foreign capital. At times use is made of financial statistics relating to the Northgate group.
and the relevant data is presented in Table 1.
The various economic impacts are discussed below under separate headings.
Generation of government revenue
Direct revenue accrued to the government in two ways. Royalties were charged on net profits throughout the period under review, on a rising scale to a maximim of 10 per cent. Mining companies were exempt from corporation tax until 1973,^^ after which they became liable at the standard rate (then
50 per cent).
Lack of data makes it difficult to accurately assess taxation receipts. The Irish government does not publish details of royalty payments by individual companies, and
industry sources are frequently unreliable (see p. 84 ), For the industry as a whole, royalty payments to June 1973 were £1,869,000; as far as could be ascertained, relevant figures have not been released since that date.
Official information regarding corporation tax is also sparse, but accurate figures can be calculated from the published accounts of individual companies, and these are presented in Table 2.
Table 2 indicates that the Irish government obtained significant amounts of direct revenue after the ending of the industry's tax exemption in 197 3, to the tune of approximately £9 million in five years. A very high proportion of this
^^ The twenty-year tax exemption was abolished by the Fine Fail/ Labour Party coalition government in September 1973. See p. 113. below.
1966* 1967* 1968* 1969* 1970 1971 1972 1973 1974 1975 1976* 1977* Totals
Gross receipts from metal
and metal concentrate sales 15,792 24,998 24,745 22,257 27,325 23,580 26,891 42,816 40,184 33,798 19,438 22,565 3 2 4 , 3 8 9
Deduct shipping, smelting
and marketing expenses 5,547 9,556 8,627 6,271 7,679 10,393 10,176 14,700 14,239 13,380 7,830 8 , 6 5 7 117,055
REVENUE 10,245 15,442 16,118 15,986 19,646 13,187 16,715 28,116 25,945 20,418 11,608 13,908 2 0 7 , 3 3 4
Deduct expenses as follows:
Operating Expenses 3,387 4,804 4,736 4,293 8,318 8,669 9,303 12,395 14,314 16,374 8,790 10,660 1 0 6 , 1 4 3 Government Royalty 420 738 738 887 834 61 263 1,171 911 19 190 247 6,479 Taxation attributable to mining income - - - 2,686 51 + + + + 2 , 7 3 7 Depreciation 967 1,065 1,142 1,399 2,112 2,677 2,431 2,797 3,083 2,357 1 ,806 1,599 23,435 Amortization of preproduction
and other expenditures 542 779 791 530 1 ,425 1,510 1,244 1,373 1,172 998 756 754 11,874
Interest payments 1,257 614 - - 338 303 317 249 - - - - 3,078 Exploration - 339 495 519 979 1,081 422 526 594 1 ,034 1,541 2,371 9,901 NET INCOME Attributable to mining (1,114) 2,735 9,605 3,185 + + + 169 44,371 Attributable to Tynagh 3,672 7,103 8,216 8,358 5,640 (1,020) 3,614 8,281 2,827 (1,299) (1,475) (1,723) 4 2 , 1 9 4
For Northgate Group 3,783 7,605 8,346 8,721 6,268 (1,306) 3,094 9,120 4,026 1,156 (598) (590) 49,625
Capital Expenditure 1,022 995 1,020 1 ,382 3,790 5,573 1,709 739 1,043 372 455 243 18,343
Dividends paid - - 2,725 2,770 2,826 1,510 - - 4,059 1,723 - 1,850 17,463
For these years, the data applies to the Tynagh mine alone.
These include operating costs at the mine and also administrative and general expenses.
+ Capital Expenditure consists of additions to fixed assets (buildings, equipment etc.) and outlays on the underground development at T y n a g h .
++ As no mining income was received in these years, it is assumed that no NJ tax liability was incurred.
H++ The sum of the figures in this column indicate a loss for the year o f C.$415,000. Profit on disposal o f fixed assets of the Gortrum mine amounted to C.$584,000, thus giving an overall profit o f C . $ 1 6 9 , 0 0 0 .
Table 2
Income Tax Liability of Mining Companies in Ireland 1973-1977 (£'000's) 1973 1974 1975 1976 1977 Total Northgate Group* - ** 1,124 23 - - 1,147 Mogul of Ireland 1,176 1,656 1,356 2,316 1,188+ 7,692 Avoca Mines Ltd. 50+"^ _ _ _ - 50 8,899
Sources: Annual Reports^ Northgate Exploration Ltd., Silvermines Ltd., various years; information supplied by Avoca Mines Ltd.
N o t e s : * - On income attributable to mining only.
** - Northgate's mining income was subject to tax in 1973,
but because of accumulated deductable allowances no liability was actually incurred.
+ - In 1977 Silvermines Ltd. did not provide information on Mogul of Ireland's tax liability (Annual Report, 1977, p. 4). It
is presumed that Mogul paid corporation tax at the prevailing rate of 45 per cent.
++ - This liability did not lead to a tax payment.
revenue was generated by Mogul of Ireland's mine. The Northgate group contributed little, because the profitable high-grade
52
mining period at the Tynagh mine was over by 1974, when Northgate first became liable to taxation.
Government revenue also accrues from employee taxation.^^ Since much of the labour employed would probably otherwise have
^^ Tynagh made a substantial profit in 1974, but this was due to the unusually high metal prices then prevailing.^ Its
profitability did not outlast the period of high prices. ^^ Indirect taxation has apparently been insignificant, as mining industry imports have been exempt from customs duties
and domestic purchases exempt from sales tax. Interview with Northgate official, 1 November 1978.
b e e n i d l e , t h i s r e v e n u e can be r e g a r d e d as a net a d d i t i o n to n a t i o n a l i n c o m e . On t h e b a s i s of f i g u r e s s u p p l i e d by N o r t h g a t e , e m p l o y e e t a x a t i o n h a s b e e n e s t i m a t e d at £ 1 2 . 5 m i l l i o n over the 54 y e a r s 1 9 6 4 - 7 7 . It w a s t h u s s i m i l a r in s c a l e to t o t a l d i r e c t t a x a t i o n o v e r t h e s a m e p e r i o d (about £ 1 1 m i l l i o n ) . This s i t u a t i o n r e f l e c t s t h e v e r y low l e v e l s of d i r e c t t a x a t i o n a p p l i e d p r i o r to 1973, and is u n l i k e l y to c o n t i n u e into the f u t u r e .
L i t t l e o p p o r t u n i t y h a s e x i s t e d for t r a n s f e r p r i c i n g in the n o n - f e r r o u s m i n i n g i n d u s t r y , ^ ^ as the o p e r a t i n g c o m p a n i e s sell t h e i r o u t p u t on an 'arms l e n g t h ' b a s i s , ^ ^ and as n o n e of t h e i r p a r e n t c o m p a n i e s h o l d s i g n i f i c a n t i n t e r e s t s in o v e r s e a s p r o d u c e r s of m i n i n g i n p u t s . ^ ^ H o w e v e r , e x a m i n a t i o n of N o r t h g a t e ' s a c c o u n t s o v e r the p e r i o d 1 9 6 2 - 7 7 did r e v e a l a n u m b e r of d i s c r e p a n c i e s . F i r s t , the C o m p a n y ' s p u b l i s h e d f i g u r e s o v e r e s t i m a t e b o t h the l i a b i l i t y of the I r i s h s u b s i d i a r i e s to r o y a l t y p a y m e n t s and t h e p a y m e n t s a c t u a l l y m a d e . For e x a m p l e , the T y n a g h lease 54
In 1974 28 per c e n t of the w a g e s and s a l a r i e s paid to
N o r t h g a t e ' s e m p l o y e e s w a s a b s o r b e d by t a x a t i o n and s o c i a l w e l f a r e c o n t r i b u t i o n s , and a s i m i l a r f i g u r e p r o b a b l y a p p l i e d to o t h e r m i n e s (interview w i t h N o r t h g a t e o f f i c i a l , 1 N o v e m b e r 1978). It is u n l i k e l y t h a t t h i s p e r c e n t a g e v a r i e d v e r y m u c h from y e a r to year, as e f f e c t i v e p e r s o n a l tax r a t e s in Ireland c h a n g e o n l y m a r g i n a l l y o v e r t i m e . The e s t i m a t e for e m p l o y e e t a x a t i o n w a s o b t a i n e d by a p p l y i n g t h i s p e r c e n t a g e to t h e f i g u r e s for t o t a l w a g e and salary p a y m e n t s c o n t a i n e d in T a b l e 3 b e l o w . ^^ T r a n s f e r p r i c i n g h a s a p p a r e n t l y o c c u r r e d in the n o n - m e t a l l i c m i n e r a l s i n d u s t r y , w h i c h is d o m i n a t e d by s u b s i d i a r i e s of v e r t i c a l l y - i n t e g r a t e d m u l t i n a t i o n a l c o r p o r a t i o n s . I n t e r v i e w w i t h D e p a r t m e n t of I n d u s t r y and C o m m e r c e o f f i c i a l , 28 S e p t e m b e r 1978. ^^ C o n c e n t r a t e s are sold to i n d e p e n d e n t s m e l t e r s at p r i c e s b a s e d on L M E q u o t a t i o n s . ^^ T h i s w a s e s t a b l i s h e d by e x a m i n i n g i n f o r m a t i o n d i s c l o s e d by the p a r e n t c o m p a n i e s in t h e i r a n n u a l r e p o r t s r e g a r d i n g t h e i r a s s o c i a t e d c o m p a n i e s and p r i n c i p a l i n v e s t m e n t s .
5 8 called for royalty payments of £257,000 or C$662,000 in 1969, while Northgate stated royalty payments to have been £345,000 or C$887,000. This divergence was not due to any time lag in collection of royalties, as it occurs throughout the period
1966-77. During these years, total stated royalty payments by the Irish subsidiaries amounted to 13 per cent of profits
attributable to mining, (See Table 1), whereas the maximum
rates applicable to the Tynagh and Gortrum mines were 9 and 10 per cent respectively. (A significant proportion of profits would have paid royalties at lower rates.)
In addition, the royalty rates called for in the mining
leases were not in fact applied. In 1968, for example, total
royalty receipts by the Irish Exchequer amounted to £200,867. (A number of mining and quarrying projects other than Tynagh were also liable to royalty payments.) Yet Tynagh's liaibility
59 in that year was £252,000.
Profits attributable to mining were C$8,358,000 or £3,248,000. Royalty rates would, according to the mining lease, be as follows:
6% of £700,000 = £42,000 7% of £350,000 = £24,500 8% of £700,00 = £56,000 9% of £ 1, 498, 000 = £ 134 , 820
£ 3,248,000 £ 257,320
Source: Minister for Industry and Commerce, op.cit., p.9; Table I. ^^ Profits attributable to mining were C$8,216,000 or £3,186,000. Royalty rates would, according to the mining lease, be as follows:
6% of £700,000 = £42,000
7% of £350,000 = £24,500
8% of £700,000 = £56,000
9% of £1,436,000 = £129,240
3,186,000 = 251,740
Northgate's motives for overestimating its royalty payments are somewhat of a mystery. The only explanation
which presents itself is that the Company wished to exaggerate its contribution to the Irish economy for public relations reasons.
The second discrepancy relates to the application of amortization and depreciation allowances to Northgate's Irish operations. Expenditures associated with mine development and not allowable for depreciation under general tax provisions were amortized over the estimated life of the mine; items which were so allowable were depreciated over varying time
periods.^^ It is evident that an element of double depreciation was involved in these procedures. The Tynagh mine was still in operation in 1977, and amortization and depreciation was
consequently incomplete. Thus the sum of amortization and depreciation allowances should have been less than the sum of
all relevant expenditures. In fact it was C$3.9 million more,-
indicating that double depreciation had been affected to an amount in excess of this sum.^^
The result was that Northgate's taxable income, and
consequently government revenue, was diminished. The allowances claimed by Northgate would of course have been sanctioned by the taxing authority (the Department of Finance), and the question arises as to why Irish officials should condone loss of tax