Do not raise corporation tax, warns think-tank
ANY increase in Ireland's corporation tax could have a "dramatic effect" on the Irish economy, the head of a leading think-tank warned yesterday.
The chief executive of the Irish Management Institute, Dr Tom McCarthy, said any adjustment in the country's corporation tax could have serious consequences for multinationals based here and was likely to see a number of businesses leaving Ireland for more business-friendly jurisdictions.
"The corporation tax rate has helped build up the credibility of Ireland as a business-friendly country for a number of years -- but that can be lost at a stroke," he warned."I am fearful of what may happen if that is increased.
"You can't expect companies to say to themselves, 'Well, Ireland is in real trouble and needs to bump the tax rate up, but that's okay because we've been here for years and have a good relationship with the country'.
"That may wash here but back in the boardroom in New York, it's a numbers game. The decision to stay in Ireland will not be made in Ireland."
Dr McCarthy's sentiments were echoed by National Irish Bank's chief economist Dr Ronnie O'Toole, who described the talk of raising the corporation tax rate as "perverse".
All measures seem to be on the table as the Government tries to calm the markets but a hike in the tax rate could serve to create more trouble for Ireland, Dr O'Toole added.
He said: "Investors will understand that increasing the tax rate will threaten the export sector, which has performed well, so there will be even more unwillingness to lend to Ireland.."
Both men were speaking at the launch of a survey of the multinational sector by IMI and NIB.
It shows some signs of stabilisation in the sector, with 26pc of companies surveyed expecting to increase employee numbers over the next year, while almost half plan to increase exports over that time.
Ireland's competitiveness still lags behind its nearest rivals, however, with labour costs far higher than the likes of China and India, which have overtaken the US as competing locations for Irish subsidiaries.
The UK is still cited as the greatest source of competition.
"We have gone some way to improve competitiveness but firms are telling us more needs to be done," said Dr O'Toole.
"More positively, Ireland's infrastructure was historically seen as poorer than our competitors and this is no longer the case, indicating that the large infrastructural spend of recent years is paying dividends."
Multinational clients of the IDA employ about 150,000 people here.
The survey covered 114 executives, whose firms employ 54,000 people.