'We should lay down our lives to keep 12.5pc'
New suggestions that Ireland's corporate tax rate should rise have been slammed by business leaders, write Roisin Burke and Nick Webb
Published 12/12/2010 | 05:00
ON the eve of the slasher budget Michael Smurfit suggested that multinationals located here could "share some of the burden of the Irish purse" through a temporary corporation tax hike from 12.5 to 15 per cent. Tinkering with that rate even by that small amount for a limited spell is as popular with business leaders as Christmas is with turkeys, we discovered.
One economist did give some support to the Smurfit suggestion.
"I don't think a move to 15 per cent would be the end of the world," argues Bloxham chief economist Alan McQuaid.
"In terms of equity with taxpayers and some sharing of pain, raising the rate has some validity. Or, possibly, bringing down the corporate tax rate for homegrown companies.
"You could argue in favour of some kind of one-off temporary levy on multinationals, of say three or four per cent, for a couple of years -- something that Greece has done," he adds.
Greece introduced a controversial one-off corporate tax levy last year called the 'solidarity levy'. It applied a 5-10 per cent surcharge on the earnings of the 300 biggest companies in Greece, on top of the usual 24 per cent rate.
"Even 15 per cent is still lower than most other countries," McQuaid says. "Though the danger is, if it is raised at all, it will stay at that level."
Business bosses we spoke to resoundingly opposed any change in the rate.
"It would be insanity," IFG boss Mark Bourke said of the idea. "I would think the 12.5 per cent rate is absolutely fundamental to any possibility of recovery. Stability is everything in this climate, keeping the rate the same sends that message of stability.
"While the Germans and the French are foaming at the mouth about our low rate, changing it would give multi-nationals the impression that anything is up for grabs and that the tax rate can be increased through the back door. It would be the thin edge of the wedge of further increases.
"When Britain's Labour government moved against non-domiciled tax exiles, not only did it have no real impact on tax revenue but it sent the wrong message to the City of London, one that wasn't business friendly," Bourke says. "It achieved nothing except headlines.
"We should lay down our lives for the 12.5 per cent rate," he concludes.
Big international corporates could walk if there was a jump in the rate, warns Ford Ireland's Eddie Murphy. "There are choices elsewhere in the world. To attract continued investment these companies need certainty.
"They're already contributing in a meaningful way to the economy in terms of payroll and employment."
The global trend is for countries to actually follow Ireland's lead and drive down their corporation tax, says IDA boss Barry O'Leary. "Countries like Belgium, the Netherlands and Britain are reducing theirs.
"Our low rate has served us well in winning a disproportionately high amount of Global FDI. Moving it up to 15 per cent would be defeating the purpose of continuing this work. When the rate was higher we used to bring in far less corporate tax.
"As it is, foreign companies pay over 60 per cent of corporate tax in Ireland and spend €7bn on salaries and €19bn in total in the economy.
"It's generally accepted that economic growth will be export-led, and 80 per cent of all exports are by multinationals."
Dr Pat McLoughan of PMCA Economic Consultants also heaps on the opposition to any change. "Even a small increase in the corporation tax rate would have a potentially damaging effect," he says. "It would trigger a belief that the rate would rise further and foreign firms would start to look over their shoulders.
"While we need to defend the low corporation tax, we must also address other areas that will help us win new inward investment. Maths education is a case in point. According to the latest OECD PISA results, Ireland is under-performing in the quality of its second-level maths education. The exceptionally strong performance of Shanghai in China is noteworthy -- in reading and science as well as maths. This shows the competition we're now up against and we need to raise our game big time."
Liberty Global's Shane O'Neill feels that tweaking the corporate tax rate upwards would "spook" the existing multinationals. Ireland attracted the companies here with a promise of 12.5 per cent and to renege on that deal would cause "confidence problems."
Despite all the talk of boosting competitiveness and education, O'Neill says that "It's a money thing".
The corporate tax rate is the single biggest influence for companies to invest in Ireland. "It's a difficult and complex argument to make to a single mother from Ballyfermot who has just seen her child allowance cut but Ireland is an export economy, 80 per cent of what we make is exported. It might feel good to do but it would damage growth and it would damage exports," he said. "I would increase taxes for individuals. I think it would be less damaging than tinkering with the corporate tax rate."
Niall Wall, the Ardagh CEO, supports keeping the 12.5 per cent rate "for a number of reasons, primarily around employment retention and job creation from the multinational sector. As a small, open economy on the periphery of Europe, we need to have a strong, vibrant multinational sector to help drive the economy. With unemployment above 13 per cent, the last thing we need to do is remove one of the key components to continued inward investment," he said.
"The problem with even a temporary adjustment, to say 15 per cent for the next three years, is that we have a track record of introducing 'temporary' taxes, such as the income levies, becoming permanent thereafter. So I am not in favour of a change to the existing headline rate, as it will erode our national competitiveness."
Gene Murtagh, the Kingspan chief executive thinks on similar lines. "We are a small island and our economy has got to sell more goods and services overseas to help us pay our way in the world. We can't do it all by ourselves and so we need the help of FDI which is heavily export oriented, and synonymous with attracting FDI into Ireland is the 12.5 per cent rate.
"As we have seen in recent months, exports have become the beating heart of this economy and so we simply cannot afford to tinker with the corporate tax rate in any way."
Chris Martin, boss of the Musgrave Group, which owns SuperValu and Centra, says: "A higher rate of corporate tax would reduce Musgrave and our retail partners' spending power with knock-on impacts for consumers, local Irish suppliers and the wider economy.
"The burden of our present economic challenges should be shared by all and initiatives to generate revenue for the government are in the national interest. But any rise in the corporation tax in Ireland would have a detrimental effect on Ireland's attractiveness as a location for FDI and on the ability of indigenous industry to reinvest in the economy.
"Ireland's current corporation tax rate enables Musgrave to invest in the economy, supporting our retail partners who live, work and create employment in local communities. Some 75 per cent of everything sold in SuperValu and Centra is produced or sourced in Ireland."