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and companies ot put their hands in their pockets to contribute to a loan and at the same time have their own tax base withdrawn by those to whom, you are loaning the money..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.