Ireland's low corporate tax helped fuel banking crisis, claims Merkel
Published 24/02/2011 | 05:00
OUR controversial low rate of corporation tax came under renewed pressure last night after Enda Kenny's key ally, Angela Merkel, said it had contributed to the banking crisis.
The German chancellor said Ireland's 12.5pc rate had distorted the tax system here, leading to what she called "misallocations''.
She was believed to be referring to the Government's dependence on property taxes for revenue during the boom. Her comments are sure to renew speculation about the future of the tax which has come under attack from the French and German governments.
The German chancellor said that while European Union countries should set their own corporate taxes, the EU should agree to limit them to a certain range just as the EU already limits VAT rates to bands.
The chancellor made the remarks in response to a question from a member of the public after a speech at a thinktank called the Centre for European Policy in Freiburg, where she was campaigning ahead of regional elections next month.
Germany's role in bailing out Ireland and Greece has triggered unease in Europe's largest economy and helped to deliver a stinging defeat to Ms Merkel's party last weekend in the city state of Hamburg, which also happens to be her birthplace.
Her latest intervention came around a week after Fine Gael leader Enda Kenny flew to Berlin to reiterate the importance of the 12.5pc rate to Ireland. Brian Cowen emphasised the same message at a summit earlier this month where he said the corporation tax rate was "a central plank of our drive for competitiveness and an indispensable part of our strategy for recovery".
Ms Merkel signalled earlier this week that European Union leaders may be ready to renegotiate the terms of Greece's bailout as part of a broader package to shore up confidence in the euro.
"There certainly is a discussion about whether to consider extending the running time of the Greek programme," she said, adding that last year's aid plan for Greece was limited to three years while Ireland's bailout package, agreed last November, runs for seven years. "It's one point that's on the table."
The comments by Ms Merkel are the first indication the EU may respond to calls to ease bailout conditions for indebted countries.
Greece pays about 5pc for European aid while Ireland pays 5.8pc.
EU leaders are working to finish a comprehensive plan to stem the crisis by a summit in Brussels on March 24-25. Germany will present initial proposals at a special summit delayed, to allow a new Irish government to be formed, until March 11 where improving European competitiveness will be a "central theme".