Wednesday 20 June 2018

Warning that Ireland faces huge economic threat over corporate tax reliance - Troika chief

Mody says country won't be able to cope with changes to tax regime

Former IMF chief in Ireland Ashoka Mody worked with the late finance minister Brian Lenihan as they dealt with the fallout from the financial crisis
Former IMF chief in Ireland Ashoka Mody worked with the late finance minister Brian Lenihan as they dealt with the fallout from the financial crisis
Gavin McLoughlin

Gavin McLoughlin

Ireland will find it "hard to sustain economic momentum" amid radical changes now taking place to international tax rules, the former head of the IMF's mission has warned.

Ashoka Mody said the Government's confidence that Ireland "stands on its own feet" after exiting the bailout "could prove premature".

And he said the Irish economy won't cope with radical changes to international tax rules, which will dent our attractiveness to multinationals.

The dire warning of a massive threat to our economy is contained in a hard hitting new book from the former head of the IMF's mission to Ireland. "Without its low-tax regime, Ireland will find it hard to sustain economic momentum," he said.

He said the Apple tax ruling and increased scrutiny on international tax havens "will require Ireland to create a new growth model, one that does not rely so heavily on low corporate taxes". "Ireland is not well prepared to deal with the challenges of that shift," Mr Mody writes. He pointed out that our domestic companies "do little research and development".

"The damage from the crisis continues: fiscal austerity forced a decline in public-education expenditures, and large numbers of young Irish citizens with college degrees left for the UK, other 'Anglo-Saxon' countries, and the Gulf States," he continues.

Mr Mody's stark warning comes on the back of a caution from Ireland's budgetary watchdog about our exposure to multinationals.

The Irish Fiscal Advisory Council (IFAC), chaired by UCC economist Seamus Coffey, warned losing just one of the bigger multinationals would leave the State with a €276m hole in its corporation tax revenue.

That does not include the impact of job losses caused by such a departure - and the tax losses and welfare spending increases that would follow -but IFAC said this would have a less serious effect, even with the loss of 2,000 jobs.

Tragedy

According to Revenue, foreign-owned multinationals paid 80pc of all corporation tax last year, totalling €8.2bn.

In a report issued in April, Revenue said the top 10 payers of corporation tax accounted for almost 40pc of that total.

In his book, 'EuroTragedy: A Drama in Nine Acts', Mr Mody writes that efforts by EU leaders, including German chancellor Angela Merkel, to present Ireland as a "poster child of European austerity and structural reform policies" were wrong. He said the country's low corporate tax regime and strong ties to US multinationals were key to the recent economic recovery, adding that multinationals' exports had overcome the negative effects of austerity on growth.

Mr Mody writes there was "a remarkable change in Irish leaders' attitudes towards financial assistance to Eurozone member countries in distress."

"Irish government officials called for a 'debt conference' to forgive debts owed by periphery countries to their European creditors.

"However, when it became clear that any hope of forgiveness of Irish debts was a pipe dream, Irish leaders quickly changed tack and turned into increasingly strident critics of debt relief for Greece."

Irish Independent

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