'America first' could hit us hardest - we must rule out nothing on future investment
Running a small country can be a lot like running a small company. You have to be adaptable to the ever-changing wider picture, whether that's the global political environment or the business landscape. One of the advantages of being small is that you should be able to move quickly. First mover advantage is important.
But the other essential requirement for success when you are small is the necessity to keep competitive. This is especially relevant for Ireland as we enter into a period of great uncertainty.
Last Friday, US President Donald Trump told us in no uncertain terms that it's "America first". That means that protectionism is back in the United States and we need to understand what that could mean. There are going to be major challenges to our corporate tax code and this has already been seen through Mr Trump's vow to slash the US corporate tax rate. He has also said very menacing things about the US pharma industry, which is such a major employer in Ireland.
British Prime Minister Theresa May's speech last week equally took quite an aggressive tone on inward investment, when she said that Britain outside the EU would have the freedom to set competitive tax rates and embrace policies to attract the world's biggest companies. We also know the UK's corporate tax rate is due to fall from 20pc to 17pc by 2020, if not before.
So we know what the British and possibly what the new Trump administration want to do - our two most significant markets.
This is arguably one of the greatest threats our foreign direct investment (FDI) policy has ever faced.
It raises the question - do we need to deliver a more competitive corporate tax offering in response to Brexit and Mr Trump? Our current corporate tax offering is strong, but is it strong enough to keep attracting business in a more protectionist world?
The other unsettling truth is that we have developed a growing dependence on the revenue we receive through corporate tax receipts. Dan O'Brien recently wrote in this paper about how there is a deceleration in our general tax receipts. In particular, tax revenue going to the Exchequer fell by more than 12pc in December 2016 compared to the same month in 2015. His analysis shows that the dramatic and welcome increase in corporate tax receipts is offsetting reductions experienced by other tax revenue streams. The corporate tax intake has also been central to the Government exceeding its budget deficit targets for the last two years.
If we are to get our health service in better shape and if we are to continue tackling our housing crisis, corporate tax receipts must keep flowing in.
A fresh look at our FDI policy needs to focus on three principles:
n Maximising the investment opportunities from Brexit and encouraging financial services entities to relocate to Ireland, based on a strong IDA strategy;
n Taking a stronger approach to target emerging markets, particularly China. The Trump administration looks prepared to limit trade between the US and China, which could potentially open up new investment opportunities. The IDA has opened several offices in China, so we are well placed to seize these opportunities;
n Maintaining our clear advantage with links to US businesses. Thankfully, our trade relationship with the US is historically and currently strong. We have to keep it strong. We currently have more than 700 US companies operating in Ireland. In 2015, US FDI to Ireland represented 20pc of all US investment in the EU.
To deliver on these priorities, a proper policy discussion needs to take place. While it may be a bridge too far to reduce our corporate tax rate from 12.5pc, nothing should be ruled out in light of the changing political environment all around us. We have to be able to respond to whatever threat emerges. We must remember that we used to have a special 10pc rate for manufacturing and IFSC companies.
However, there are concrete policy decisions that could benefit our corporate tax offering. These could include: improving our system of tax reliefs to encourage top executive foreign talent to come to Ireland; maintaining our intellectual property regime; and ensuring Finance Minister Michael Noonan's knowledge development box is implemented in full.
What must be a major priority for the Government is improving our infrastructure in the areas of transport, housing and broadband. These are real issues for businesses considering a move here.
Given our new dependence on corporate tax receipts and the new protectionist landscape, we need to ramp up our efforts to keep the investment pipeline strong. Nothing should be ruled out.
Brian Hayes is a Dublin Fine Gael MEP