I move: “That Dáil Éireann:
– confirms its absolute commitment to the maintenance of the 12.5% rate of corporation tax;
– is opposed to any Irish participation in proposals to introduce a Consolidated Corporate Tax Base within either the Eurozone or the European Union as a whole;
– notes the clear evidence that investment attracted to Ireland by our policy on corporation tax is largely won against non-European Union countries and is therefore a net-benefit to the EU; and
– believes that any move away from these established policies would undermine Irish employment and prospects for a strong recovery with serious implications for the wider European economy.”
Fianna Fáil has introduced this motion because we believe that this new Dáil should reaffirm the broad political consensus that there has been for many years concerning the need to retain Ireland’s current corporate tax regime. At a time when a small number of people in some other countries have become obsessed with our corporation tax, Dáil Éireann should demonstrate that that this is not a point upon which Ireland can or will make any gestures to satisfy the foolish and ill-founded negotiating positions of a handful of countries.
Following the Taoiseach’s comments last week and our vote for the then Opposition’s motion last year, we hope and expect that the motion will be supported without amendment by the government parties.
There is not one shred of evidence that Ireland’s corporation tax is a major issue for the economic future of any other European country– but there is overwhelming evidence that it is vital for the economic future of Ireland. It is not just about the rate, but it is about the manner in which it is administered in a fully clear and transparent way, giving investors the long-term security which helps them plan for growth and job creation.
At a time when the challenge facing Ireland and Europe is to stimulate the economy and create jobs, pressures to increase tax to be paid by investors and innovators shows a detachment from the reality of the situation in Ireland. It also serves to undermine the core principals of the great European project which has, up to this point, earned it strong popular legitimacy.
The background to Ireland’s corporation tax policies is often misrepresented – and this House regularly hears false claims about when and how the 12.5% was implemented. It is not the case that we have had a low single unified rate for decades. For many years we had a low 10% rate for the manufacturing sector which was particularly designed to attract inward investment and a much higher rate for all other activity. This higher rate stood at 36% in 1996. In the mid-1990s it was correctly held in Europe that this system of dual rates represented a discriminatory approach towards one sector of the economy – and therefore it was agreed to move to a unified rate.
Following a series of detailed studies by officials, Minister Quinn announced the then government’s intention of seeking to unify the rate at 12.5%. It is a gross distortion of history to say that the 12.5% was introduced in early 1997. There was no formal agreement with Europe, there was no legislative provision and, critically, there was no financing provided.
As the record shows, over the following year the new government, led by Fianna Fáil, carried out negotiations with the European Commission and reached an agreement, the enactment of which came in the 1999 Finance Act. In 2003 the move to the 12.5% rate was completed.
This is not the lowest corporation tax regime in either Europe or the world. Unlike in many EU countries, it is implemented fully – so that the effective tax rate is very close to the nominal tax rate. France’s inward investment authority actually advertises its rate as being just over 8%. Germany’s effective rate is also lower than ours. There are places in Europe where it is possible to get close to zero corporate taxation, together with investment incentives which we can never match.
What makes our corporation tax regime an effective attractor of investment is that it is reliable. It is administered fairly and transparently. A company setting-up here knows exactly what their tax liabilities will be not just during a start-up phase but also over the long-term. I held many meetings during my time as Minister for Enterprise, Trade & Employment with prospective investors in Ireland. Time and again they said that they were getting better offers from other countries on corporation tax rates. In addition to our skilled workforce and investment policies, we won those investments because of the strong political consensus behind maintaining the corporation tax rate.
It is also the case that the overwhelming majority of investment projects we have won have been against non-EU countries. In winning technological investments for example, our main competitors were Singapore, Switzerland and Israel. In relation to medical devices, Puerto Rico was a major competitor. What Ireland has been winning is facilities of global, rather than just European significance. Our ability to compete and win in these areas should be a source of European pride, not envy.
One major point about our corporation tax rate which has been missed by those who complain about it is that every relevant authority who has looked at it has confirmed that it does not represent a distortion of the single market. It fully adheres to our legal commitments to the European Union. It is this volume of analysis that allows us to conclude that the moves being made against the policy now are purely political.
Any fair review of the many clearly identified distortions of free trade and fair competition within the Union, many of which remain in place in spite of Commission findings, will conclude that our corporation tax is utterly marginal.
There is no doubt that some other countries have developed a deep antipathy towards our corporation tax policies. Quite frankly it has become almost a fetish for the representatives of some countries to get excited about them. I had many debates with ministerial colleagues from other countries about this, and the House will know that Taoiseach Brian Cowen had a major disagreement with President Sarkozy at his last Council meeting which was both colourful and passionate.
What is amazing about this, is that not one shred of evidence has been produced to show that our corporation tax is anything other than a miniscule part of broader European economic performance. Our economy is 1% of the size of the European economy. Our policies have an impact on the French and German economies which is close to zero.
Ill-founded as it clearly is, there is no doubting the strength of German and French desires to force us to increase the rate of the tax. Equally, they had no doubt as to the strength of our resistance to their pressure.
As time has gone on, the strategy has evolved to try and win a forced harmonisation of corporate tax rates by the back door. The motivation behind the push for a Consolidated Corporate Tax Base has only ever been to raise the level of corporation tax paid by companies based here and in other low-tax-rate countries. CCTB from its very inception has been a solution in search of a credible problem to address.
The justification behind CCTB at the point of its conception was explicitly harmonisation. Growing resistance from many countries forced this to be changed to supposedly “reducing the costs of compliance”. The fact is that this benefit would be at best marginal and is itself an item very low on the agenda of European industry.
CCTB is a priority only for governments who want to increase revenue. Nobody who actually runs competitive and job-creating enterprises is demanding this.
The House may not be aware that an independent academic study has just been published concerning the likely impact of the Commission’s latest CCTB proposal. It has many parts, but this report published on Monday states clearly that the proposal, if implemented in full, would likely be of no net benefit to the European economy as a whole. It would also be of negligible, if any, benefit to France and Germany. There would, however, be a direct and potentially devastating impact on Ireland’s economy.
The only independent study of the CCTB proposal before the Council is that it would reduce our national income by over 3%. That’s a quick and permanent reduction in GNP by over 3%.
In this circumstance we can say with apologies to no one, that agreeing to CCTB would not be a ‘gesture’ – it would destroy jobs, further undermine public finances and cripple our fragile recovery.
While the Taoiseach has been clear on CCTB, this has not been the case with some of his other ministers – some of whom appeared this weekend to suggest that we should find a way of engaging with the CCTB issue.
There is no current or even theoretical model of CCTB that does anything other than offer a destructive impact for Ireland and we have to be very clear that we will not participate in CCTB. No subtlety, no fudge works here. There are no potential benefits but devastating costs to CCTB – this will not change with negotiation.
As I mentioned earlier, our commitment to an approach to reconstructing the financial system in such a way as to respect the interests of the entire Eurozone is a pretty major ‘gesture’ by any standards. We can and should offer to introduce new fiscal rules designed to prevent unsustainable spending. Equally we can and should participate with the ECB in reforming financial regulation. These are responsible and relevant ‘gestures’ which should more than meet the concerns of countries if they genuinely wish to remain committed to the core EU principles of solidarity and collective action.
We should also insist that our partners acknowledge the importance of the whole Lisbon Treaty process. Tax harmonisation was explicitly excluded from the competencies of the Union. The first referendum was, in part, lost because of scare-stories about our corporation tax being in danger. The second referendum was also, in part, won because we received detailed reassurances and legal guarantees that our right to set our own policy would be fully respected.
I have no doubt that the only way we can read the Lisbon results is to say that the people have already had their say on this issue. This is not some abstract political or elite economic issue. The Irish public understand and support public policy on corporate taxation. No Irish government or parliament has the legitimate right to make any change whatsoever to this policy without the people’s consent through either a referendum or a clear electoral mandate.
Both Labour and Fine Gael stood on unambiguous manifestoes opposing both a rate rise and CCTB. This commitment was included in the programme for government which was endorsed by both parties as well as by the Dáil. There is no wriggle-room or clever wording possible to enable a negotiation. If Ireland wants to have a future then Ireland cannot compromise on this – and this should be accepted by any country which genuinely wishes us to recover and for us to do so within the Euro.
This motion is designed as a positive statement not a defensive one. We are a small nation on the edge of Europe. We do not have available to us large numbers of policy instruments to help us to be prosperous in a globalised world. Through our membership of the Union and Eurozone we accept many constraints on our action. To try and force us to abandon a vital economic and employment policy would mark a betrayal of the spirit of solidarity of the Union we joined. It would mark an abandonment of the strategy for integration adopted by a previous generation of visionary leaders. It would put ill-founded national prejudice ahead of clear evidence. For the sake of a ‘gesture’ which would be of no significant benefit to the countries demanding it or to Europe as a whole, Ireland would have its recovery hopes fatally undermined.
This is an issue which demands political unity from us. Ireland is a responsible member of the European Union but no one has the right to ask us to undermine our own economic future.
I commend the motion to the House.