When the dust settles on the paperwork, the Irish public will have forked out roughly £1.8 billion for shares in Telecom Eireann. The flotation was the first concerted attempt to sell shares on a mass marketing formula, complete with TV ads which could have done service as a Chieftains' video.
On this level, the campaign must be judged a huge success: the willingness of a broad slice of the Irish public to buy equities has been demonstrated beyond argument, and the 575,000-person take-up is proportionately larger than was achieved through similar mass marketing campaigns in the UK and elsewhere.
The number of Telecom shareholders will not collapse in a hurry, either, if the experience of the Irish Permanent is anything to go by. At the end of last year, Irish Permanent had retained 97 per cent of the shareholder numbers it had at the end of 1994, the year of flotation. These may not be precisely the same people, and, since most Irish Permanent shareholders got at least some shares for nothing, they may have felt there was no great pressure to sell. But the willingness of the Irish people to hold on to these shares is striking.
The dawn of a new shareholder democracy is, however, a long way off. The absolute amount of money paid over by the public, at £1.8 billion, needs to be put in context. It is an average of a little over £3,000 per shareholder, allowing for a refund of the over-subscription money, which begins next week. To add some perspective, it is roughly equal to the amount spent by the Irish public on new cars during 1998, and below the figure likely to be spent this year for the same purpose.
And the amount of the public's overall assets which now consists of direct share ownership is trivial compared to other forms of wealth-holding. Deposits in the financial system held by the non-Government domestic sector are about 25 times the amount paid for the Telecom shares.
These deposits are in turn dwarfed by the principal form of wealth-holding, which is the value of the owner-occupied housing stock. This would be valued at a minimum of about £100 billion, more than 50 times the amount subscribed for Telecom shares. The amount owed to the financial system in residential mortgages is under 20 per cent of the aggregate value of the properties concerned, so most of the £100 billion in residential property is net wealth of the general public.
At the end of 1997, the Pensions Board reported 520,000 persons in membership of funded occupational pension schemes under its remit. There are self-employed people outside its remit, and the overall numbers are growing. In addition to the pension funds, the public also owns insurance policies and units in managed funds. The total comes to about £65 billion, and the cash inflow into these funds (net contributions plus investment earnings) equals about £3 billion a year. Most of these funds are invested in equities, both Irish and foreign. The annual cash flow into such funds easily exceeds the amount subscribed directly by the public for Telecom shares.
Everyone who is a member of a pension fund already owns quite an amount of equities, although the holding is indirect, and illiquid, since the money is not accessible directly to scheme members.
Wealth held in the form of houses or in pension funds is less liquid than either deposits or shares in quoted companies, and it is clear that most Irish private sector wealth is held in illiquid form. This reflects mainly the remarkably high Irish figures for home ownership, and the extent of funded occupational pensions. This overall pattern is not likely to change in a hurry, even if the Government privatises the remaining State-owned commercial companies.
IN Thursday's Irish Times, Pat Rabbitte remarked that the Telecom flotation will ". . . provide the political impetus for a clearout of the family silver". But Telecom is the Sam Maguire Cup, worth more than any of the other State companies is likely to fetch. If the Government flogged the lot, the value of shares in the hands of the general public would probably remain well below the value of their bank deposits, never mind the value of their homes and pension funds.
The Government will devote the proceeds of the Telecom issue to reducing the national debt, which is ultimately a liability of the same general public. The family silver has been bought on tick, and is in any event worth less than the house.
There will, it is clear, be more privatisations over the next few years, and direct share ownership by the public seems to be rising anyway. There are two changes I think the Government might make before the next privatisation.
The figure of £250 for the minimum subscription in the Telecom issue was a mistake. It is just too low, and anyone selling their shares will pay £10 or £12 to their broker, a figure which is the same even if your shares were worth up to £4,000. But be warned: this is a special offer from the leading brokers, who normally have a minimum commission four or five times that figure. There is also a 1 per cent Government tax (nice little earner), normally paid by the buyer. The dealing costs make it expensive to hold shares in small quantities, and a minimum of at least £1,000 would be more realistic.
The second point concerns dividend taxation. On the average shareholding of £3,000, dividends might be about £60 per annum. You are supposed to pay at your marginal tax rate, and there is no simplified retention tax along the lines of DIRT (the Deposit Interest Retention Tax). A streamlining of dividend tax would be timely, given the huge number of people who may now have small and confusing tax liabilities. Deduct at source, at some average rate, with no paperwork, and I suspect there would be sighs of relief at the Revenue Commissioners.
Colm McCarthy is managing director of DKM Economic Consultants
