IRELAND’S LOW rate of corporation tax is emerging as the first battleground between the Government and the EU authorities as work begins on drawing up its drastic four-year austerity plan.
The EU economics commissioner Olli Rehn said yesterday that no tax policy changes should be excluded from the Government’s plan to return the national deficit to 3 per cent of gross domestic product by 2014.
Mr Rehn’s comments, as well as briefings from senior European officials, were taken as raising doubts over whether the State could achieve such dramatic reductions in the national deficit while retaining the 12.5 per cent tax, which has proved controversial with some EU countries.
The American Chamber of Commerce in Ireland has reacted strongly. “At a time when the economy is in deep recession, nothing which would impact on the continued investment in Ireland by our existing base of multinationals, or would deter new investment in Ireland can be countenanced. The Taoiseach needs to send a very clear message to the multinational community that there will be no increase in corporation tax rates,” said Lionel Alexander, president of the American Chamber of Commerce in Ireland.
Mr Alexander pointed out that US companies employ over 100,000 people in Ireland and have invested over €165 billion here. In 2008, they contributed €3 billion to the exchequer in taxes, including 40 per cent of the total corporate tax take, as well as a further €13 billion in expenditure in the Irish economy.
The Department of Finance yesterday unequivocally ruled out any change in corporation tax, which has been a central feature of Irish economic policy for over a decade. “This commitment is protected, in an EU context, by the principle of unanimity in taxation matters. That was further enhanced by the insertion of a legal guarantee in the Lisbon Treaty. The 12.5 per cent corporation rate is a cornerstone of the Irish industrial policy,” said the spokesman.
Minister for Finance Brian Lenihan has acknowledged that other new taxation measures would form part of the four-year plan, said the spokesman. The economist Colm McCarthy, who chaired the “An Bord Snip Nua” cost-cutting report, yesterday said obvious developments in taxation included water charges.
Taoiseach Brian Cowen, asked about corporation tax, said taxes were matters for national governments. “It’s really important not to be drawing any speculative conclusions whatsoever.”
Fine Gael leader Enda Kenny challenged Mr Cowen to clarify his stance. “The Taoiseach’s ambiguity and evasiveness about the future of the low rate of corporation tax is unhelpful, to say the least.” Mr Kenny said Fine Gael wanted the rate to remain, contending any increase would be a disaster for investment.
The Taoiseach also indicated he would not be seeking consensus from Opposition parties in advance of the plan’s publication. Instead, he challenged them to present alternative plans.
Former taoiseach Garret Fitz-Gerald, writing in his column in The Irish Timestoday, has contended that the Government should embark on a consultative process with Fine Gael and Labour on the plan in the national interest.
“Party agreement on the main parameters of a fiscal plan has advantages for the Opposition as well as the Government. It would limit the capacity of a future Fianna Fáil opposition to attack the implementation of this fiscal plan by a new government.
“This, then, is a critical moment for the Irish State and for its political class – a test of the capacity of our leaders in a real crisis to act patriotically, by transcending party politics for a brief moment,” he wrote.
Speaking in Brussels yesterday, Mr Rehn said: “It’s a fact of life that after what has happened, Ireland will not continue as a low-tax country, but it will rather become a normal tax country in the European context.
“You ask about tax increases, I do not want to take any precise stand on an issue which is for the Irish Government . . . to decide, but I would not rule out any option at this stage.”
A report in French daily Le Mondesaid Brussels wanted the 12.5 per cent rate increased.
Asked whether the four-year deadline would impose too severe a burden on Ireland, European Central Bank chief Jean-Claude Trichet said the plan was “absolutely essential in terms of the credibility of the country”.