Time to wind down corporate tax regime and boost economy
Donald Trump goes back farther than I thought. I don't mean the man but the manner - that chilling combination of bombast, bullying and bluster. It was all on view in an interview shown recently about his first great achievement, the building of the Trump Tower in New York.
That was the early 1980s but already he was using the surprisingly effective defence that anything printed in the 'New York Times' is untrue. It would appear that rather than reality TV making Mr Trump, he was made for reality TV.
Trumpery, however fascinating, is not the subject of this column. It is the content of the interview shown on the UK Channel Four series; whether there should be a tax break of a couple of hundred million dollars for the building of Trump Tower - located, in what was admittedly a master stroke, on just about the most fashionable corner in New York.
The then city mayor, Ed Koch, who apparently hated Trump with a vengeance, refused. Mr Trump lost that battle but won the war. An even grander project later was allowed to write off taxes worth a multiple of the original claim.
Every other investor won the war with him. The problem with tax incentives goes beyond those available to giant multinationals and is a lot more local than sun-drenched islands.
The domestic version was probably the single most important cause of the property bubble and bust, providing the offal on which the banks could indulge their feeding frenzy.
Despite this, the multinational regime gets most attention, although one can see why. The amounts involved are staggering; they are the subject of international attention, and Ireland is an extreme case - perhaps, in this particular type of arrangement, the extreme case.
When it comes to the European Union, international attention is nothing new. In his review of the corporate tax regime for the government, UCC economist and chairman of the Fiscal Advisory Council Seamus Coffey traced the history of the Irish regime.
It is noteworthy that, when Ireland joined the EEC (as it was) in 1973, its tax relief for manufactured goods was deemed to be illegal state aid.
It could hardly be otherwise, since it singled out a particular sector but it is worth remembering that this principle is part of the founding arrangements of the EU, not some new attempt based on increased integration.
The EEC was already working on corporation tax harmonisation and hoped, before that, to harmonise cross-border tax reliefs. Irish legislation was changed to make it more compatible with these ideas but, as we know, things took a very different path - at least so far.
The Shannon free zone was even more outside EEC rules but the entry terms agreed that these special arrangements were necessary for Ireland, "to take account of the objectives of economic expansion and the raising of the standard of living of the population".
Naturally, that no longer applies but back even then, Ireland had to agree that they would be phased out by 1990. Irish policy since has been to find ever more complex ways of keeping the attractions of the system while staying within EU law.
For some years, the Commission continued to take a fairly benign view, including something which it may now regret; the extension of reliefs to the Dublin financial centre, the IFSC.
It changed its stance as Ireland grew more prosperous but Irish governments did not alter theirs. In what looked like a final showdown, until the Apple case, a 12.5pc rate was applied to all activities. Along the way though, the type and scale of activities was transformed in ways no-one would have foreseen.
One of the first was the growth in tax-based financing and leasing, making use of capital allowances - a subject in the news again in recent months. Irish institutions would purchase plant and machinery, claim accelerated capital allowances as well as IDA grants, and then lease it to companies which qualified for export or manufacturing tax reliefs.
In a phenomenon which was to be repeated, legislation to curb tax avoidance ended up providing further opportunities for it. The so-called Section 84 loans were a major part of the financial scene in the 1980s.
And so matters have continued, with foreign hostility to Ireland's regime increasing, and evidence that Irish policymakers have become more and more enmeshed in the business of attracting and retaining multinational investment; to such an extent that it often seems government is no longer in charge of policy.
Things became immensely more difficult with the arrival of the Information Age. The Irish system already offered opportunities and it would have seemed obvious, and certainly irresistible, to make any changes that would deliver even modest taxes from this cornucopia.
Not so modest either. Corporation tax receipts averaged €4bn from 2011 - 2014 but €7bn in the following two years, as intellectual property (IP) moved to Ireland. The Coffey report was optimistic that much of the recent increases in corporation tax would be maintained in the medium term but Mr Coffey himself calculated that a possible €1bn in tax revenues was foregone by that decision, as almost €300bn in IP was moved here in 2015.
What was supposed to be a tool of economic development became the cornerstone of the economy. It would also seem that most of the revenue has been consumed rather than invested in making the economy more productive.
The extra €6bn in revenues over the last two years has been absorbed with barely an increase in public investment; which is scheduled to grow by just €3bn over the next four years.
Along the way, multinationals may have unintentionally harmed the domestic exporting sector, with their impact on wages, prices and resources.
Certainly, that sector is quite incapable on its own of maintaining our present standard of living and international financial position.
One worry is that Brexit will widen the imbalance, as multinationals hoover up staff, space and housing just as the indigenous sector is losing out in the UK market and trying to improve competitiveness to break into new and more difficult markets.
If the Coffey report is right about such revenues being sustained in the medium term, they should be used for genuine economic development as Ireland prepares, not to defend the present system to the last ditch, but instead to wind it down in the most orderly and least disruptive manner, replacing it with something more akin to the original intentions of 50 years ago.