Wednesday 13 December 2017

Maeve Dineen: All eyes on Portugal but corporation tax row lingers

Maeve Dineen

'Today was Portugal's day," Michael Noonan told reporters when he stepped out of the informal meeting of Europe's finance ministers in Budapest on Friday. Ireland's economic woes were no longer top of their agenda.

But cutting the rate of interest on the money we are borrowing as part of the IMF/EU bailout was certainly discussed and a 1pc rate reduction seems to be on the cards once Portugal's finances are sorted out in early June. What isn't clear is just what the Government will have to concede to get it.

Mr Noonan told us he wasn't in Hungary to "negotiate" and that his colleagues knew it was important Ireland got a rate cut to make the rescue more affordable. Indeed, he wanted the whole thing signed and sealed as quickly as possible before he has to start drawing down further billions as part of the €24bn recapitalisation of our banks. This was "serious" money, he said, and the cheaper it was, the better in the long run.

His colleagues all knew, he added, that our corporation tax was vitally important to the country's recovery. It will underpin future economic growth by helping us to continue to attract multinationals to our shores to create much-needed jobs. His message was that corporation tax could not be offered up as part of any deal on interest rates. And from their discussions, Mr Noonan said, the importance of low corporation tax to Ireland was understood by the other finance ministers.

He further stressed his case in separate meetings with Germany's Finance Minister Wolfgang Schaeuble and France's Christine Lagarde. The Government would like to explore alternatives, he suggested, as a quid pro quo for the rate cut. He made his case clear but the next morning there was no sign that he had managed to soften their position.

If anything, Mr Schaeuble hardened his position and came out to publicly demand that corporation tax be part of the negotiation. The terms that applied to Ireland's rescue package could only be re-examined if Ireland put something on the table, he said.

"If Ireland, for its part, doesn't want to make any changes, then there is no willingness on the side of the governments to make changes," he warned. And he added: "It is an important step that we in Europe, also on the basis of the proposals of the German chancellor, try to establish a common approach to calculating corporation tax."

Ms Lagarde described her discussions with Mr Noonan as "good". They talked about "the general taxation landscape" and agreed to discuss it further. There is "willingness" on both sides to do that, she said.

So the Government has a few weeks to continue its negotiations with Europe's finance ministers to get both the rate cut and save corporation tax. It will be a difficult negotiation and if they are to save the crucial low tax rate they may have to come up with a concession on another tax.

The idea of a rate cut and surrendering corporation tax has been firmly linked in the minds of those following the negotiations. Many of the international press corp, for instance, speak about both issues in the same breath. Not all of Europe is against us on this issue. Italy's finance minister has offered support on the understanding that it is intrinsically linked to our hopes to regain our economic sovereignty.

Mostly though, everyone in Budapest was talking about Portugal. Its predicament was familiar to people from Ireland and the head of the euro group Jean-Claude Juncker, ECB governor Jean-Claude Trichet and EU Commissioner Olli Rehn all spoke about it. Some of the Portuguese journalists were asking how the country would fund itself until the money was agreed and were less than heartened to hear that they would be expected to adopt even more severe austerity measures.

There was a sense that Portugal's hand had been forced by Europe's richest countries, which were interfering in that country's political system in an unprecedented manner. Mr Rehn said the bailout would have to be agreed by all political parties as the caretaker government would almost certainly hand power to the opposition after the June 5 election. Only time will tell whether the same powerful axis will force Ireland's hand on corporation tax.

Maeve Dineen is on leave

Irish Independent

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