News Editorial

Friday 22 August 2014

Low-tax policies created the Tiger

Published 24/10/2004 | 00:11

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ANYONE who argues, as the Irish Congress of Trade Unions (ICTU) does, that Ireland's low-tax regime was not a cornerstone of our recent economic success, must be living in some parallel universe. To claim that lower tax on income, capital and corporations has not greatly facilitated the rapid rate of economic growth, or indeed the huge surge in employment in this economy, is

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ANYONE who argues, as the Irish Congress of Trade Unions (ICTU) does, that Ireland's low-tax regime was not a cornerstone of our recent economic success, must be living in some parallel universe. To claim that lower tax on income, capital and corporations has not greatly facilitated the rapid rate of economic growth, or indeed the huge surge in employment in this economy, is fanciful in the extreme. And yet this is what the ICTU contends in its latest document: 'Tax cuts did not create the Celtic Tiger.'

In the late Eighties some 1.2 million people worked in the economy, a figure little changed since the foundation of this State in 1922. Currently, there are 1.8 million in employment, a 50 per cent increase in less than two decades. This expanded workforce now includes many who have returned from abroad to work here, who were forced to emigrate in the barren Eighties. The Ireland they left behind was a land of high tax, high unemployment, high debt, high emigration, one of low growth, little opportunity, and less hope. Today, one-third of immigrants are returning Irish nationals, and for many the Ireland of their homecoming is unrecognisable from the place they left, not least the low-tax regime that has released energy and enterprise, that has generated self-confidence, created jobs and helped raise living standards.

The transformation of the Irish economy since the low point of the mid-Eighties represents one of the most remarkable recoveries by any developed economy in modern times. Less than 20 years ago Irish living standards were two-thirds of the European Union (15-member) average. From being one of the poorest of the rich, Ireland has become one of the EU's richer member states.

The reasons for that economic success have been well rehearsed: the rising population, the educated work force, and the very low level of female participation within that workforce. All these provided the potential for a rapid expansion in employment. Add in the financial transfers from the EU budget, which helped to develop the national infrastructure, the roads and telecommunications. And, of course, very clear benefits accrued from access to the single market; particularly for foreign multinational companies who were keen to locate here, and to use Ireland as a low-tax, and low-labour cost base for their European operations.

Except, of course, few of those multinationals would have invested in Ireland without the incentive of a low corporate-tax regime. And they would never have stayed here, if the corporate tax advantage was subject to review, change, and ongoing uncertainty.

In 1956, as economic policy was reversed and free trade replaced protectionism, the first step to encourage foreign direct investment in Ireland was the inducement of low corporate tax rates. And all parties in all governments have held that policy line ever since, not least against some strong external pressure (including from the EU) to force us to change it.

What is different this time is that for the first time the low-tax consensus has been broken in this country, by the ICTU. It has raised the white flag on corporate taxation. In doing so the ICTU has sent a disturbing message to multinationals based here that may wish to expand and to those who might come, but may now be deterred. This country's low-tax regime has been a proven winning formula; otherwise, why have so many other of the new EU member states from central and eastern Europe copied it in a bid to emulate Ireland's economic performance?

In business, one does not change a winning formula. Low taxes, whether corporate, capital or income, have been central to the Irish economic success story. But since the ICTU now chooses to believe that Ireland's low-tax model was not a factor in the economic boom, it now favours higher taxes to finance higher spending, and feels those higher taxes would not adversely affect economic performance, by damaging employment and growth prospects. The ICTU should have an economic reality check, abandon the parallel universe, return

to earth and live in the real world again.

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