Minister for Finance Brian Cowen yesterday accused the Labour Party of "undermining" Ireland's position on corporate tax and promised that Fianna Fáil will veto proposals to harmonise or increase corporate tax in the EU, if re-elected.
Rejecting the accusation, Labour's enterprise spokesman Ruairí Quinn said that his party was committed to keeping the rate of corporate tax at 12.5 per cent.
At a press conference in Dublin yesterday, Mr Cowen said that, under Fianna Fáil, Irish governments have argued strongly against any harmonisation, but that this position had been undermined by Labour MEP Proinsias De Rossa.
"Proinsias De Rossa is on the record as supporting the Common Consolidated Corporate Tax Base (CCCTB)", he said yesterday.
The CCCTB proposes that a common method of calculating corporate tax be introduced across the EU. The idea is supported by EU commissioner for taxation Laszlo Kovacs, as well as the governments of Germany, France, Italy and Spain.
Mr Cowen said that it was a "recurring item" of discussion in the European Commission and, if introduced, could lead to higher corporate taxes coming in "through the back door".
"Both directly and indirectly, measures which would require us to increase corporate tax are being pushed. Mr Kovacs has talked of bringing forward proposals this year," he said.
Mr Cowen said that Fianna Fáil would oppose any move to support harmonisation.
"Fianna Fáil in government and in the European Parliament will use all necessary means - including the use of the national veto - to prevent these steps on the road to corporate tax harmonisation."
He called on the Opposition to make its position clear.
"I want to see it in unambiguous terms that they will oppose it, that they will if necessary veto it," he said.
Mr Quinn, who served as minister for finance between 1994 and 1997, said Labour's position on the rate of corporate tax was beyond doubt.
"We recognise the importance of the current rate in attracting and retaining foreign investment. Any increase in the rate of corporate tax could threaten the jobs of Irish workers and we will not be party to any such move," he said.
While acknowledging that Mr De Rossa had voted in support of discussing tax harmonisation, he said that this did not necessarily indicate support for harmonising rates.
"I was minister for finance when the rainbow government set up a cabinet sub-committee to agree on an appropriate rate for corporate tax that would be negotiated with the EU Commission. The other members of that sub-committee were Pat Rabbitte and Richard Bruton. Our recommendation of a 12.5 per cent rate was accepted by the rainbow government and this rate was subsequently negotiated with the EU," Mr Quinn added.
Mr Cowen said that Labour's support for a low corporate tax rate had been qualified in the past and added that the CCCTB proposal was the "thin end of the wedge" in attempts to raise corporate tax. "In the weeks before the 1997 election, they said they would like to reduce it to 12.5 per cent by 2011," he said.
In response to a question from The Irish TimesMr Cowen said that the National Development Plan would be Fianna Fáil's key priority in government if pressed by budgetary circumstances.
"Maintaining the balance is number two, public services spending is number three and then tax cuts," he added.
Fianna Fáil has promised to deliver €7 billion in extra spending and tax cuts and to keep the budget in balance or surplus. Recent economic forecasts from the Central Bank and ESRI suggest that its economic assumptions - which are the same as those made by Fine Gael and Labour - may prove to be optimistic.