ANALYSIS:In saying he would not rule out any option, economics commissioner Olli Rehn has sent a clear signal, writes ARTHUR BEESLEY
EXACTLY ONE year after Irish voters backed the Lisbon Treaty in a second referendum, Ireland’s corporate tax regime is in focus again in Brussels. This time it’s really serious.
European economics commissioner Olli Rehn left little to the imagination yesterday when he said Ireland’s days as a “low-tax country” were over. With Dublin on the rack due to the ever increasing banking bailout, the squeeze is on to find additional revenues to fill the hole in the public finances.
The immediate pretext for Rehn’s remarks was a report in Le Monde which said Brussels wants the Government to increase the 12.5 per cent as austerity measures are intensified in the drive to boost Ireland’s credentials with debt investors.
Rehn didn’t say whether he agreed that the tax should rise. But was there any particular taxation measure that should be ruled out now as the Irish authorities try to climb what is a very high mountain? “I do not want to take any precise stand on an issue which is for the Irish Government and the Irish parliament to decide, but I would not rule out any option at this stage,” he replied.
The signal is clear enough. In Brussels, officials struggle to see how the Government can bridge the gap between revenue and expenditure without increasing the corporation tax rate.
This is all the more so given the very scale of the measures introduced since Minister for Finance Brian Lenihan embarked on the road to rectitude in mid-2008. He has been to the well four times already, making a total grand adjustment of €15.5 billion in a painful succession of cuts and tax hikes.
Although Dublin insists it can continue in this fashion without interfering with corporation tax, Rehn seems doubtful.
The issue is highly sensitive, for two reasons in particular. The first is that the current policy is a key competitiveness lever for Ireland, whose competitiveness in numerous other areas slipped badly in the boom. The argument goes that any uncertainty over the rate would seriously dim Ireland’s lustre as a key investment centre for large corporations. Thus did Dublin ringfence the regime long ago. Even as recession struck, it was taxpayers who had to bear almost the entire burden of adjustment.
The second sensitivity is long-standing resistance to the Irish policy in major member states such as Germany and France, who took apparent umbrage as Ireland’s low rate helped the State to become a magnet for multinational investment.
As a result, the Irish policy has become something of a touchstone for campaigners who favour adopting harmonised European corporate taxation. The European authorities argue they do not want to do that. At any rate, EU tax policy is subject to unanimity among member states, so individual countries can veto any undesirable manoeuvres.
Still, the push for the adoption of a common consolidated corporate tax base has long been perceived as a threat to Ireland because that would make it more difficult for international companies to avail of the Irish regime.
These questions were prickly enough to have surfaced as a major topic during the Lisbon debates, ultimately leading the European authorities to pass a special “guarantee” to safeguard the Irish policy. The guarantee says nothing in the Lisbon arrangements can make “any change of any kind, for any member state, to the extent or operation of the competence of the EU in relation to taxation”.
Of course, that can’t stop a state changing tax policy of its own volition. In addition, it is frequently speculated that the surrender of the 12.5 per cent rate would be the price Ireland would have to pay in the unfortunate event that the State needed emergency financial aid from the European authorities.
The thinking goes that Germany, the paymaster in these matters, would insist that was so.
It is therefore ironic that questions over the policy have surfaced so early in an austerity drive whose very objective is to prevent a rescue situation arising. EU officials say they have no wish to infringe Irish tax sovereignty. This is merely a question of sums that don’t add up, they say. Dublin insists it will prove them wrong, but patience is wearing thin in Brussels and time is short.