France and Germany come after our corporation tax again
> Merkel, Sarkozy want budget curbs
> Corporation tax back on the table
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THE Government faces a fresh battle to keep our 12.5pc corporation tax after a shock proposal from France and Germany last night.
And we face a referendum within 12 months, which would impose borrowing limits for the day-the-day running of the country.
Both proposals would have serious long-term implications for taxpayers as they would restrict how a government raises exchequer finance.
And that could force a government to turn to taxpayers to make up the shortfall.
French President Nicolas Sarkozy and German Chancellor Angela Merkel disclosed their new plan, ostensibly to quell the euro crisis, after summit talks in Paris.
The unprecedented move would mean a referendum to change the Constitution to introduce a ban on excessive borrowing.
A similar ban is already in place in Germany.
However, Ms Merkel or Mr Sarkozy failed to introduce any real measures to tackle the crisis. Markets across the world fell after they ruled out increasing the bailout funds to cope with a possible crisis in Italy.
The leaders also shot down calls for common eurobonds that would help riskier countries borrow in the markets.
They insisted that euro economies would have be integrated more closely before any deal could be struck on common debt.
Instead they concentrated on forging ahead with greater integration of euro government finances, including a shock move to harmonise corporation tax, and a "golden rule" to ban excessive borrowing.
Here, Finance Minister Michael Noonan insisted that Ireland would retain control of its economic sovereignty.
He made it clear that any deal on limiting debt would require a "constitutional amendment" that would only be possible through a referendum. He said it would be up to the Government to consider this.
Harmonise
The latest move to harmonise tax rates puts that issue back on the European agenda, to the likely annoyance of the Irish government.
Last night Mr Noonan said all countries, including Ireland, would have to agree to any tax harmonisation. He said that Ireland had already signalled it was going to constructively engage on this issue. "That remains the case," he added.
France and Germany said they wanted stronger economic governance across the euro area and proposed tighter integration of the 17 euro states, excluding the 10 countries that are in the European Union but do not use the euro.
They want heads of the 17 euro governments to meet twice a year to oversee each other's finances.
The two also called for the creation of a new role of president of the eurozone and proposed European Union President Herman Van Rompuy as the first office holder.
They also want countries to consider a tax on financial transactions. That might recover some of the cost of coping with the financial crisis.
Economist Karl Whelan of UCD said the proposed constitutional change will not address the current debt problems.
- Donal O'Donovan and Michael Brennan
Irish Independent
