Statutory debt limits a quid pro quo for easing Irish debt?

Arthur Beesley on Enda Kenny’s European adventure (which given the times that are in it are more important than next week’s much reduced St Patrick’s day jaunt to the States):

…one of Kenny’s prime tasks today is to convince his counterparts that his Government intends to make good on its pledge to doggedly pursue the fiscal path of rectitude and reform.

In the first instance at least, this overrides debate on the interest rate and the banking debacle. Indeed, the basic case for any easing of Ireland’s rescue terms rests on Kenny’s ability to persuade other leaders that he has the mettle and gumption to keep going when the going gets rough.

He continues, on the subject of Ireland’s preferential corporation tax rates (which is both filching revenues from other EU countries and one of the few taxes still bring in cash to the Irish revenue):

Kenny, of course, has vowed not to accept a common corporate tax base. Also, his administration can abstain from imminent commission legislation on this front. This is still very uncomfortable ground for him, particularly as he is looking for a substantial reduction in the interest rate on bailout loans.

Here he runs into German demands for reciprocation, a stance bolstered by Dutch resistance to any rate cut and wariness among Austrians and Finns. It is a given that their combined clout easily exceeds that of Ireland’s supporters, who include other “PIGS” group luminaries like Greece, Portugal and Spain.

Ireland argues that the moral hazard case for a penal interest rate is overstated, bailouts carrying a significant political cost for the recipient. In addition, the case is made that the high interest rate is unsustainable and undermines the bailout’s core objective of restoring order to the public finances.

Against that, however, is the case that the 17 euro countries signed up to the bailout scheme on the basis that loans would be released only at dissuasive, penal cost. This argument still has many adherents.

If the Taoiseach will not concede on corporate tax, what else can he give Merkel? This debate centres now on a debt brake, which would place a strict legal limit on the national debt. Kenny favours this notion already but there is some reluctance to go the route of a constitutional amendment.

What are the odds of a Yes vote if a referendum were portrayed as a German-inspired initiative.

The most recent precedents on that are not particularly promising.

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  • Mack

    which is both filching revenues from other EU countries

    Not sure about that Mick. It certainly gives US multinationals an advantage over any European counterparts not reducing their profits tax rates in building up a cash hoard for acquisitions or disbursement to shareholders (making them more attractive investors etc). The truth is though they’d probably find some other mechanism if it were denied to them (other low tax countries, transfer pricing etc).

    Ireland is a small country and our corproation tax is only maybe 30% of Germany or France’s. Corporation tax as a percentage of GDP isn’t out of whack with EU norms. So even in the unlikely event that France, Germany and Britain got the lion’s share of any relocations they’d be sharing out some proportion of tax revenues accruing to small country. A couple of billion euro each, maybe 3 or 4 at a stretch.

  • Mack

    Actually I meant to multiply the final figures (2-4 bn) by the corparation tax differentials. Which would give €4-12bn each. But the upper limit is highly unlikely, and the increase would probably be below the lower guestimate as tax hq’s would move to Switzerland, Luxembourg or Eastern Europe..