Congress calls for ‘long hard look’ at tax breaks for private equity firms
17 Jul 2008
July 17th, 2008.
Today the Irish Congress of Trade Unions joins with unions in 25 other countries in a Global Day of Action calling on governments and pension trustees to wake up to the threat posed by private equity funds to sustainable employment. "Private equity, or leveraged buyout firms, use investment money from pension funds, university endowments and wealthy individuals to buy public companies and make them private. This takes them off the stock market and away from public scrutiny. The volume of private equity deals has grown by 600% in the past five years", ICTU senior economist Paul Sweeney said.
"Congress is concerned that private equity companies are gaining huge power while avoiding public attention and accountability. As our Budget submissions have highlighted, they can receive tax subsidies to service debts incurred in a takeover, and funded by shedding jobs, to pay interest changes incurred during the takeover.
"One of the biggest private equity firms, KKR, owns well-known companies such as Toys R Us, Nielsen, and Boots. Through its portfolio companies, it is effectively the second largest US-based private employer in the world after Wal-Mart. Along with many other private equity firms it has sacked thousands of workers and forced others to take pay cuts in the drive to increase profits and pay off leveraged debts.
"Top executives in private equity firms make huge personal profits from deals. The personal fortune of KKR's Henry Kravis more than doubled in one year - from $2.6 billion in 2006 to $5.5 billion in 2007. Tax breaks that go into the pockets of buyout billionaires like Kravis could be used by governments to build roads and pay teachers. Private equity companies incur huge amounts of debt in order to buy companies. They then deduct debt servicing from profits. This costs governments around the world billions in lost taxes annually. Tax loopholes also mean individuals like Kravis often pay lower tax rates on their huge profits than many teachers or nurses.
"It is vital private pension schemes and national governments take a long hard look at these multinational free loaders. In our own case, the National Pension Reserve Fund must implement socially responsible investment policies as a matter of urgency.
"The investment of workers' retirement savings is an area to which the Irish Congress of Trade Unions has increasingly turned its attention. It is no longer sufficient to focus solely on the benefits side of pensions, important as these are, but also on the kind of investments made by our pension schemes. These can have a great impact on workers' jobs and livelihoods.
"In joining the Global Day of Action, Congress is calling for accountability from KKR and the leveraged buyout industry. It calls on our pension scheme trustees to consider all the issues before writing blank cheques to private equity firms and on the government to monitor and strengthen laws governing these firms' activities."
Contact: Paul Sweeney, ICTU, 086 205 2572 and 889 7724
Padraig Yeates, PYE Comm, 828 4510 and 087 260 5297