AMBASSADOR TALKS PHILANTHROPY AND ECONOMY WITH

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SIPDIS

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: ECON EFIN PGOV EI
SUBJECT: AMBASSADOR TALKS PHILANTHROPY AND ECONOMY WITH
FINANCE MINISTER COWEN

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1. (SBU) Summary. On January 23, the Ambassador met with
Finance Minister Brian Cowen to gauge the Minister's
attitude toward tax and other legislative changes aimed
at increasing charitable giving in Ireland in advance of
the Ambassador's February 21 Philanthropy Symposium.
They also briefly discussed key economic challenges
facing the Irish government. Cowen seemed personally
amenable to providing additional tax and other incentives
in support of charitable giving, but noted that there could
be challenges to selling these changes politically. He
said there are sensitivities to giving the wealthy a tax
break and giving donors discretion over the application
of donated funds. Some believe funds donated subject to
a tax deduction should go into a "social investment fund"
administered by the government. Cowen said that the
important thrust of his ministry in the year ahead will
be improving public- and private-sector productivity.
He commented that, while prices have dipped slightly,
the housing market looks to be in good shape and the
banking sector continues to be well capitalized and
liquid. Cowen noted that tax revenues have dipped but
that there is a policy consensus for maintaining
capital budget spending at high levels, which means
reducing the rate of growth of current government
expenditures -- a future fight he clearly does not look
forward to. End Summary.

Building a Philanthropic Culture
--------------


2. (SBU) The Ambassador met with Cowen to touch
base with him in advance of the Ambassador's
February 21 Philanthropy Symposium and seek his
advice on the possibility of tax and regulatory
changes designed to boost philanthropic giving.
Cowen said that Ireland is only beginning the
discussion on philanthropy and welcomed the
Ambassador's initiative as a valuable
contribution to the debate. However, he
continued, some tax and regulatory changes
would be difficult to sell to the Irish
public, which, he felt, would view any such move
as a "handout to the rich" because of the strong
cultural belief that the tax code should be
"equitable." Cowen argued that what is needed is
a concerted campaign to educate politicians and the
public about sensible policies that encourage
philanthropic giving.


3. (SBU) Cowen's preference would be to amend the
tax code but to put the donated money into a
social investment fund, which would allocate the
money. Under this scheme the donors would have
no say over the ultimate destination of the
money. The Ambassador argued that such a
structure would bring about less giving than if
Ireland were to follow the American model of
allowing the donors to determine how their charitable funds
are directed. The Ambassador also stressed that
change was needed to ensure that wealthy Irish
were encouraged to keep their money in Ireland
and to reduce the burden on the state coffers of
supporting institutions (hospitals, museums,
etc.) that are largely funded publicly in Ireland
but privately in the U.S. Cowen took these points
and promised that his staff would attend the
Symposium and maintain contact with the Embassy on
the issue.

Banks OK but Spending a Problem
--------------


4. (SBU) On the economy, Cowen and his deputy,
Kevin Cardiff, said that, while prices have
dipped slightly, the housing market remains
healthy. Cardiff noted that the "underlying
demographics support the current level of house
prices" and that the government does not expect a
steep price drop. Cowen said that Irish banks
remain well capitalized and do not seem to be
having difficulties.


5. (SBU) Cardiff continued that the European
Central Bank (ECB) would have difficulty
following the Fed's large interest rate cut
because of greater upside inflation risk in
Europe. Cowen pointed out that, after many years
of little wage growth, the recent large German
wage increases have stoked inflation. He said
that Ireland will no longer have the luxury of

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riding the wave of German wage restraint.


6. (SBU) Cowen said that the Irish government's
central economic concern now is to find a new
post-Celtic Tiger model. Key components will
likely be policies aimed at increasing public-
and private-sector productivity, keeping a lid on
growth in current government expenditures
(public-sector wages principally),and maintaining a
vigorous capital spending program. On the
latter, Cowen said that there was a consensus among
policymakers that Ireland needed to upgrade its
infrastructure. He said that, for the first time,
productivity improvements may need to be factored
into any future public-sector pay deals.

Comment
--------------


7. (SBU) Comment: Cowen appeared personally amenable to
exploring ways to amend the tax code to promote charitable
giving and seemed open to a frank discussion of the matter
at the Symposium. However, his political instincts trumped
his personal views, counseling that an education campaign
would
be needed prior to proposing modifications to the tax code
and
providing more incentives for charitable giving.
That said, we believe we can work with his Ministry to make
progress on the issue. Cowen was clearly not looking
forward to a tussle with the civil service on future wage
deals. However, he knows that with falling tax revenues
and a clear need to improve Ireland's infrastructure
(transport links, hospitals, schools) this is a fight in
which he must engage. End Comment.
FOLEY