It’s raining medical cards – in the nightmares of the Fianna Fail backbench TDs. What were they thinking? Is the €100 million savings worth the political disaster the Government has brought on to itself? €100 million? It’s peanuts in the grand scheme of things – not even representing a fifth of 1 percent of all government spending. For someone on the average industrial wage it would come to 16 cents per day. And they’re not even going to save that amount – not with their make-it-up-as-they-go-along adjustments in thresholds, not with the extra costs it will impose on other health expenditure (drug repayments, resources to monitor the means-test, etc.). It’s bad politics, bad health, bad accountancy, and bad policy.But there’s one policy statement in the budget that will provoke no outcry, no opposition, not even a passing glance.
‘The 12.5% rate of Corporation Tax is an important element in our taxation system. It has been a cornerstone of our industrial development in the last decade. I want to emphasise that this rate of tax is not for changing upwards and it will continue to be a central part of Ireland’s economic brand. Ireland’s economic prospects are dependent on a vibrant and modern business base and I know that virtually all sides of this house will agree with me that our rate of Corporation Tax is essential to this.’
State it and move on. No political party in the Dail – not Labour, not Sinn Fein – will disagree with the Minister’s declaration. A reader of this blog, Yvonne, asked a pertinent question:
‘What I don’t understand is why corporation tax is ‘untouchable’? Surely a small percentage increase here wouldn’t precipitate a mass exodus of TNCs?’
This question raises more issues than just finding a bigger revenue stream; it goes to the heart of the historical failure to create a strong indigenous enterprise base and the on-going (and intentional) obfuscation of the health of Irish business – as opposed to the health of companies in Ireland.
And here, before, the Court of Progressive Thought, I admit heresy. For I would not support increasing the corporate tax rate at this time, and for a considerable time to come. I know that Paul Sweeney of ICTU has argued cogently for such an increase. ICTU supports the raising of the corporate tax rate to 17.5 percent. The Left – in the Labour Party and other parties – is generally convinced its a good idea. But still I resist.
First, we are stuck in a painful dilemma – and the Minister inadvertently raised this: the low corporate tax rate is the cornerstone of our industrial development; or more honestly, it is the cornerstone of our addiction to foreign capital. Let’s not be under any illusions: were it not for the success of the IDA in bringing foreign capital here in the late 1980s and early 1990s, there would have been no Celtic Tiger economy. If we had relied on indigenous enterprise we would still be competing with Greece and Portugal for the prize of being the poorest country in the EU-15. The multi-nationals didn’t come here for the weather, never mind our crumbling infrastructure; they came for the tax – or lack of it.
So addicted to foreign capital are we that only 10 percent of our exports – whether goods or services – comes from our indigenous sectors. And the biggest of our homegrown sectors, Food, is relatively low-waged and over-reliant on the UK market. In terms of the high value, high skill jobs and activities – these are by and large in the foreign sector.
Second, in terms of the amount of corporate tax receipts as a proportion of GDP, Ireland has one of the highest take from the corporate sector in the industrialised world. Is this because we’re such a go-getting, entrepreneurial economy? Hardly. It’s because we have prostituted our corporate tax regime to multi-nationals who engage in transfer pricing and brass-plate operations. Our high tax take from the corporate sector is not a reflection of a progressive tax regime (hardly), nor does it reflect real-economy activity (though there is that in the foreign sector). It reflects our glorified tax-laundering shelters we give to companies.
Third, would increasing the tax rate drive out foreign capital? Probably not as much as the doomsayers over at the American Chamber of Commerce predict. Multi-nationals get bedded down in the economies they are located and moving out over a few percentage points on profits they don’t even make here would be a costly affair.
But – and this is the heart of my argument – it would undermine the IDA’s attempts to get multi-nationals to set up shop. The main selling point is not our energy infrastructure or our broadband network or our port infrastructure. It’s the tax. The problem is that we don’t know what the effect would be on future foreign capital projects, but if tax is your main selling point, then it would be a brave government to risk it.
We don’t have a brave government. We have a lazy one. It has given up on indigenous enterprise development. It pretends that new export sales to Asia are evidence of the health of the Irish economy when, in fact, it is only evidence of multi-national export strategies devised in boardrooms in other countries and from which Ireland is just a physical launch point.
Is this sustainable? No. The Enterprise Strategy Group nailed this one correctly. We can’t keep relying on importing foreign capital to do the job that we are unwilling or unable to do. But until we start doing that job, we need foreign capital to keep this economy ticking over. If not, we can either go back to the plough or pay the new €10 air travel tax and find somewhere else to work.
If the Left ever comes to power in this country it will have to keep focused on the real problem in our economic base. It’s not that companies pay too low a tax rate (though they do), it’s that we don’t have enough indigenous companies paying the tax, exporting its goods and services, growing to a scale where it is internationally competitive, investing in R&D, pursuing progressive labour relations – in other words, we don’t have enough homegrown companies acting in a modern, wealth generating way.
It is only to the extent that we solve that problem, that we will be in a strong position to start raising the corporate tax rate. Because then we won’t be addicted to foreign capital. Were they to leave or not come in the droves they have been, it won’t have such detrimental effect. And those that do come will do so because we have a modern infrastructure, a modern way of doing business.
That’s the prize. That’s the ground where the right-wing parties have no strategy, no ideas, no policies except to continue our unsustainable addiction to foreign capital. That’s where the Left can start its fightback to be taken seriously on economic issues. The corporate tax rate is the end-game, not the opening gambit.
Latest posts by Michael Taft (see all)
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- Be Glad You’re Not Living in One of the Those Terrible High-Tax Countries - January 8, 2013
- In Search of Labour’s Half Billion - December 7, 2012
- Why Some People Will Get Hit Very Hard - December 4, 2012