Now the question arises of the fate of lower corporation tax – north as well as south

Now that the Irish government has come clean albeit through gritted teeth , anxiety mounts over the terms of the bailout, in particular the fate of 12.5% corporation tax. Given the total stand- off between the parties, this seems like a issue of confidence for the survival of  the Fianna Fail-led coalition. Internally  in the short term at least, they should come through. This is no time for a general election or a handover to a different coalition, particularly one without an alternative policy.

 It is in Northern Ireland’s interests that Ireland’s corporation tax survives. It seems inconceivable that the British government would be able to designate Northern Ireland as a special enterprise zone with a lower rate of corporation tax at its core if the last jewel in the Irish crown were to disappear. What would be sauce for the sovereign goose would have to be sauce for subordinate smaller gander,  however much governments posture about their sovereign fiscal independence. I would welcome an expert discussion on the prospects.

As the Irish Times reports:

The Government will try to limit the size of the drawdown and the scale of outside involvement in wider economic management.

It is also expected to battle to prevent any increase in the €6 billion adjustment proposed for the 2011 budget and the €15 billion target in the four-year plan.

At the start of the Dáil debate, Tánaiste Mary Coughlan insisted Ireland‘s corporation tax rate was not up for review in the talks. “I will take the opportunity of saying that the 12.5 per cent corporation tax is non-negotiable,” she said.

But can they hold out?

With the inevitability of British participation in the bailout, hear the blunt candour of Keynesian economic commentator Will Hutton on RTE at lunchtime over brass plating:

There is an issue of FTSE 100 companies moving to Ireland. You cannot ask British taxpayers and companies ot put their hands in their pockets to contribute to a loan and at the same time have their own tax base withdrawn by those to whom, you are loaning the money.. I don’t think Ireland should be allowed to hold out.. at the very least there’ll have to be a moratorium on it (with the understanding that new ) companies cannot take advantage of it. It’s a farce and your listeners should understand that.”

Slugger has already aired the counter arguments, but Hutton’s comments are worth running as they may reflect mounting political pressure. Some relief may be found towards the end of the  Guardian’s report .

Chancellor George Osborne declaring British preparedness for participating in a bailout tried to distance himself from expectations that a condition of an assistance package would be a requirement that Ireland raise its 12.5% corporate tax rate – the lowest of any major eurozone country. “It’s up to countries to decide their own tax policies,” he said.

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  • Anon

    The British Government does not want any precedent of EU interface in tax rates. Period.

    Ireland can probably play the brinkmanship game pretty well here; An Irish default would be much, much worse for Europe. Moneys on 12.5% staying.

  • Glencoppagagh

    I suspect there’s quite a bit of accumulated resentment within a number of EU states towards Ireland’s ‘uncommunitaire’ behaviour over taxation, it having received such a large amount of EU largesse.
    It may be pure coincidence but the Irish economy started to lose its way in the early 2000s when the EU insisted that Ireland adopt a uniform corporation tax rate. Before that, a low rate (10%) applied only to manufacturing companies plus those based in the IFSC. Banks, developers etc paid a much higher rate.

  • Glencoppagagh

    I suspect there’s quite a bit of accumulated resentment within a number of EU states towards Ireland’s ‘uncommunautaire’ behaviour over taxation, it having received such a large amount of EU largesse.
    It may be pure coincidence but the Irish economy started to lose its way in the early 2000s when the EU insisted that Ireland adopt a uniform corporation tax rate. Before that, a low rate (10%) applied only to manufacturing companies plus those based in the IFSC. Banks, developers etc paid a much higher rate.

  • john greene

    ‘It seems inconceivable that the British government would be able to designate Northern Ireland as a special enterprise zone with a lower rate of corporation tax at its core if the last jewel in the Irish crown were to disappear.’

    Not sure I follow. If EU insisted Corporation Tax in RoI went up to say 20% why couldnt NI set its rate at 15%?

    Truth is competion on this however is with Latvia, etc not just RoI

  • Mack

    The precedent for tax harmonisation measures would be set and Britain’s ability to resist similar fiscal measures while remaining as a full member of the EU would be reduced. The EU would be one big step closer to becoming a super-state.

    I think one possibility is that they pile Ireland up with debt now, leave corporation tax alone but include both tax harmonisation and debt forgiveness in a future treaty..

    I’m not sure how effective pushing up corporation tax now would be. The terms of the support will be temporary (at most 3 years), what’s to stop Ireland reducing it then (with a rebate?) other than the carrot of less painful debt restructuring.

  • Mack

    Will Hutton’s arguments are bogus. We don’t have a world government countries can set their own tax rates. If the EU force Ireland to raise theirs, there will still be lots of countries with low corporation tax rates (Switzerland anyone)?

    If it’s an issue for Britain then they should lower their own rate or change their laws on transfer pricing and repatriation of profits..

  • Biggest Baddest Bobby

    Ian Parsley clearly agrees with you, Brian:
    http://ianjamesparsley.wordpress.com/2010/11/15/irish-bail-outs-and-missing-treasury-papers/

    I agree, notwithstanding the comments on his post, that the Conservatives seem to have hung on long enough to avoid the hassle of reducing Corporation Tax in Northern Ireland, almost regardless of what happens in the Republic – it is seen as a broken policy anyway. The headache now is what they *will* do, in order to avoid yet another broken promise to the people of Northern Ireland.

  • alanmaskey

    Ireland has been able to get overseas investment not just with its lower tax rate, important though it is, and its PR blarney nonsense about the young, educated workforce but also by going out there and hussling for it.
    The North, by contrast, has only politicians like Gerry Adams, who have been singular failures at getting any FDI.
    The best tihng Adams can do for Louth is to stay in West Belfast, as far away from Louth and Leinster House as Mr Louth Mouth can.

  • “You cannot ask British taxpayers and companies ot put their hands in their pockets to contribute to a loan and at the same time have their own tax base withdrawn by those to whom, you are loaning the money..”

    I wonder if English taxpayers would say something similar if NI gained a competitive advantage within the sterling zone while receiving significant fiscal transfers from Westminster?

  • the future’sbright, the future’s orange

    predicting a rise to 15%

  • DerTer

    Wonderful editorial and letters page in The Irish Times today; and Davy Adams on top form. Of relevance to this topic is the following letter, worth quoting in full – and I do so in strong approval:
    “A chara, – Having recently noted that multinational leaders are once again appealing to the Government to retain the corporate tax rate of 12.5 per cent, I feel this sacred tenet of the Irish economy should be discussed. Corporate tax ensures that the profits of companies are spread throughout society so that the many may benefit rather than only the few. By pitching our tax rate extremely low we are in effect undercutting the good social policies of other countries. Similar to a worker crossing a picket line and being called a scab, we have in effect become the economic scabs of the world, allowing corporations to avoid paying tax, avoid social responsibility and maximise profits for shareholders. I think it is time we take [sic] a look at this disgraceful policy and amend it by increasing it to at least 15 per cent. This is still a long way off the capitalist US rate of 35 per cent but at least would bring us more into line with other nations and signal our solidarity with nations trying to promote values such as fairness, equality and justice. – Is mise, SEAN McMAHON”

  • slug

    We have reduced our rate.

  • aquifer

    ‘I wonder if English taxpayers would say something similar if NI gained a competitive advantage within the sterling zone while receiving significant fiscal transfers from Westminster?’

    I don’t think it would trouble them much, most of them think we should already be part of the republic.

    Corporation tax is not the whole story. Employees pay tax, there is VAT on purchases. Capital gains tax. Fuel duties. I don’t know about commerial property rates. Listening to Fianna Fail ministers is a tax on the soul.

  • Reader

    Mark Dowling: I wonder if English taxpayers would say something similar if NI gained a competitive advantage within the sterling zone while receiving significant fiscal transfers from Westminster?
    If it reduces dependency on the annual subvention *and* it attracts FDI to the UK that wouldn’t normally be available, they should thoroughly approve.
    Overall, a very low corporation tax rate only benefits a small economy, as a big economy loses more in tax than it gains in growth and FDI, since there is only so much FDI to plunder…