Wednesday 7 December 2016

Kenny flies flag for business and commonsense at the EU

Published 17/03/2011 | 05:00

What is it about tax and recessions? The route out of this recession if you believe many commentators is apparently through the easy panacea of higher tax revenue.

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European politicians like President Sarkozy believe Ireland should save itself by lifting its corporation tax rate, while the Labour Party has come into government looking for fewer spending reductions and more taxation increases.

Whatever about the latter argument, the Sarkozy logic is purely baffling. Last year Ireland collected a puny €3.9bn of corporation tax receipts. Puny in the sense of composing just 12pc of Ireland's entire annual tax take.

An increase of, say, 2pc on the rate of corporation tax would make virtually no meaningful difference in addressing the overall Budget deficit Ireland has, which can only be tackled meaningfully via income tax and VAT increases (plus spending cuts).

Of course, raising the corporation tax rate would put in peril a large segment of the income tax receipts paid by those employed in the multinational sector, leaving Monsieur Sarkozy back at square one in his strange Irish adjustment programme.

For some reason the French leader has got it into his head that Ireland's tax base collapsed because of low corporation tax receipts.

But of course, it collapsed because almost a fifth of the base was hooked up to the property industry.

This is why the corporation tax debate is so false on the surface. Nobody in Germany or France is too interested in the actual corporation tax receipts Ireland receives annually, or the funds foregone by the German and French exchequers as a result.

It is about employment ultimately and the upfront investments that foreign multinationals make in their host economies.

That may be why the EU, in pushing its latest CCCTB tax proposals, is more interested in talking about the logistical and practical benefits of the idea, rather than the long-term employment implications.

Enda Kenny made the not unreasonable point to his EU counterparts last week that if Ireland's tax receipts were to be restored to a sustainable position, removing a key plank of those receipts -- the taxes paid by those associated with foreign multinationals here -- makes little sense.

This view is supported by the broad swathe of the business community here, foreign and domestic.

Remember, it is not just Google or Microsoft that would be disrupted by raising the 12.5pc rate, but thousands of medium-sized and small firms.

In fact many of them would be even more disrupted because they cannot avail of all the generous tax allowances and write-offs that larger companies can use to reduce their tax liabilities.

For many small firms, the 12.5pc rate is the rate. They want it to remain so, and so far the incoming Government has drawn a line in the sand that should protect them.

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