Divide and conquer

A friend of mine has just sent me this link, in which Sarkozy is saying that it is unreasonable for us to maintain our low corporate tax rates while seeking financial aid from Europe:

“I deeply respect the independence of our Irish friends and we have done everything to help them. But they cannot continue to ask us to come and help them while keeping a tax on company profits that is half (what other countries have),” he said.

For a more inflammatory version of the same argument, by an influential French economist, click here. And I was struck on my last trip to France by how ordinary people there are making the link between the Irish bailout and our ‘dumping fiscal’.

There are lots of obvious counters to all this, but I think the more important point is that such responses are inevitable, given the European response to the crisis to date. As two recent articles point out (here and here), the real cleavage in Europe is between European taxpayers and bank creditors (with the ECB being a third interested party, as another body which could help to fill the holes which have emerged in the European banking system). But since the powers that be are ruling out bondholder haircuts and quantitative easing, the only cleavage we are left with in practice is the one between core and periphery taxpayers.

Of course ordinary French and German taxpayers are going to be angry at lending their money to an insolvent state with lower tax rates than their own. Why wouldn’t they be? Of course ordinary Irish taxpayers are going to be angry at having to pay for high interest loans designed to bail out foreign banks. Why wouldn’t they be?

And while ordinary Europeans get angry with each other, with unpredictable political consequences, capital walks away scot free.

97 replies on “Divide and conquer”

The other European states did not bail out Ireland to help Ireland. They did it to help themselves and above all their banks. So the link is a false one.
But that doesn’t alter the fact that Ireland’s corporation tax IS a scandal which is being abused by many multinationational corporations. It is not just the rate od 12.5%. It is the way in which firms like Google are allowed to do the tax equivalent of money laundering.

very succinct and very scary

We have seen how resentful germans were when they were forced to make punitive repayments between the world wars.

We have also seen how relentless their creditors were.

Are we to replicate past madness on a greater scale?

@Monsieur Sarkozy

Can France not set its own Corporation Tax rate?

Is anyone forcing you to keep it so high?

I have a suggestion for you. Raise your retirement age to the same level as in Ireland. Then, you too will be able to afford to lower the Corporation Tax rate. I suggest you read the following links.

http://focus.ie.edu/entry.php?id=1264

http://en.wikipedia.org/wiki/Retirement

As they show:

average retirement age: France 58 , Ireland 63

%age of population aged 55-64 still working: France 35% , Ireland 65%

%age of population aged 60-64 still working: France 12% , Ireland 44%

The fact is, mon cher Monsieur Sarkozy, your high Corporation Tax rate is entirely your own choice, implemented so that large sections of your electorate can swan off to the Riviera when they are in their mid-50s, while in Ireland and the English-speaking world generally, people mostly carry on working until their mid-60s. If Ireland is forced to increase its tax rates to harmonise with other countries, will there also be harmonisation of retirement ages? Or will people who work until their mid-60s in those countries where it is the norm, like Ireland, have to subsidise the early the early retirement of people in other countries, like France, where retirement at age 56-58 is the norm? I am 62 next month and still working a 55-60-hour week, with every intention of still doing it for many more years. I am not complaining, as I enjoy it. But, I’ll be damned if I am going to do it so that the tax revenues my work raises goes to pay for French ‘workers’ to retire in their mid-50s and then swan off to the Riviera for the rest of their lives.

Comparing war-reparations with failed banking policy?

I do not see the similarities but I keep seeing the comparison being made. Can someone explain?

Failing to monitor ones banks is the problem of other countries?

Suggestions have been made in Swedish media to let Ireland default and bail out the banks by injecting equity. The result would be better for the countries bailing out as they could sell the equity later on, the result for Ireland? Ireland would have to balance the budget on the day of the default. Would be an interesting day for the Ireland, would it be a better or worse than the current solution?

@ Jesper

Failing to monitor one’s banks is indeed a problem of other countries if said other countries’ banks are creditors. If we don’t bail out our banks, their banks take a hit. Simples, no?

Another ridiculous intervention our corporate tax rates by another ridiculous politician. Does Sarkozy not realise that our 12.5% corporation tax rate is the single biggest calling card for our external industrial policy? Hundreds of companies have been attracted to us firstly by our low CT rate and then by our well-educated, flexible workforce and our membership of the EU.

If we were to raise our CT rate to, say, 20% then there would be an exodus of companies from Ireland. Thousands would lose their jobs and billions in tax revenue lost. Ireland would be tipped into another fiscal crisis and we would be back to our EU partners looking for another bail-out.

And they won’t be flocking to France. Why would they when France has excessively high rates themselves, inflexible labour markets and a populace who strikes at a drop of a hat? These companies would go to places like Switzerland and Israel and France would have no control over those places.

David Blake and Jesper express sentiments that I agree with.

On the corporate tax, most of MNC sales are in the big economies but for example Google doesn’t appear to make any profit in the UK market, which is one of its biggest overseas markets while it’s a similar situation for pharmaceutical sales in Germany.

It’s good when we can get corporate tax income from activities elsewhere but we should spare the whited sepulcher stuff when the boot is on the other foot.

It’s also interesting to wonder how many who take strong stands on the primary obligation being on lenders not borrowers, would take the contrary position if it suited.

It wasn’t only Harney who was sneering at failing Germany.

In the early years of EEC membership, the argument in Ireland was about the ‘obligation’ of rich countries to support the poor on the ‘western periphery.’

The support went on when it should have stopped in the mid 90s; of course it suited us to take the money.

We only complain when the rules are not in our favour!

@ Cathal

The rates don’t have to change; has France a right to demand that profit on MNC sales in it jurisdiction are not unfairly diverted elsewhere?

“Of course ordinary French and German taxpayers are going to be angry at lending their money to an insolvent state with lower tax rates than their own.”

…..insolvent state with lower tax rates and higher pay rates than their own.

That, rightly, makes them even angrier.

“Of course ordinary Irish taxpayers are going to be angry at having to pay for high interest loans designed to bail out foreign banks.”

This has become the narrative for domestic consumption in Ireland hasn’t it; the reason there is a fiscal squeeze is because of those irresponsible foreign banks, they should have known better – after all we’re only a little country and haven’t been running our own affairs that long (I haven’t made that last one up btw, somebody actually said that to me a while ago).

This is a great way to be popular at the moment – even FF TDs can buy into this myth.

I think it it unhelpful in terms of assisting the nation to understand the country’s position and start to properly engage in a debate about how it might interact with or negotiate with the EU, IMF and senior creditors, if the very large structural deficit is airbrushed out of the discussion.

US BEA figures show that the combined net profit of US corporations in Ireland doubled between 1999 and 2002 from $13.4bn to $26.8bn and was $48bn in Ireland in 2005, compared with $37.01bn in the UK and $74.06bn in the Netherlands.

US companies in Germany made net profits of $11.22bn in 2005; French affiliates reported income of $9.52bn and Italian operations made $8.58bn.

Martin Sullivan, a former US Treasury Department economist who specialises in international taxation, has said that the rise of US profits in low tax countries has been matched by a decline in profits in the large industrial countries where US companies conduct most of their business.

Sullivan said as a group, Canada, France, Germany, Italy, and the United Kingdom saw the profits of US companies operating in their borders fall 25% from $72 bn in 1999 to $54bn in 2002 (a drop from one-third overseas profits in 1999 to a little more than one-fifth in 2002). While these five countries accounted for 44% of foreign sales, 44% of foreign plant and equipment, and 56% of foreign employee compensation in 2002, they accounted for only 21% of foreign profits.

In countries where effective tax rates have fallen, profits of US companies operating within their borders have risen significantly.

@KoR

“the only cleavage we are left with ” –
don’t forget all the useless t*ts in Fianna Fáil

This is what happens when you have a industrial policey is based entirely on external credit while our internal capital obtained from the same revenue stream is used almost entirely for consumption.
They are going to rip us apart.
We are the Bambi of Europe stranded on a savannah full of Hyenas and jackals.
Easy meat.

“These companies would go to places like Switzerland and Israel”

Switz has a serious problem with the franc at the moment and exporters are talking about moving to the Eurozone !

Israel isn’t going to get anything. It isn’t in the EZ and non Jews and non Hebrew speakers are discriminated against. Companies leaving Ireland would be most likely to go elsewhere in the EZ.

The fact of the matter is that there is a limit to implicit guarantee of banks by sovereigns. It is a political limit. A similar political limit governs countries willingness to bail out other countries. When those two limits are incompatible you have big problems.

Those limits are influenced by narratives. The narratives in the centre of europe is to blame the periphery. It does not recount their own lax regulation of banks or the fact that certain profts and returns on investments were illusory but that the policy of lending money to other countries did create markets and preserve jobs for the lenders. One of the reasons this narrative does not exist is because leaders would have to take responsibility for their mistakes.

I will accept paying back some bank debt through my taxes even though I did not borrow that money and the sovereign did not borrow that money. However, I will not condemn future generations for the stupidity of bankers. There is a limit and it is approaching rapidly.

Btw, the law is the law. The “implicit guarantee” of banks is not enshrined in law. It was never insisted on by countries or by lenders. We should be careful how far we go now.

The initial bank guarantee, the ELG scheme and bond issuance all create sovereign liabilities. However, those liabilities are in many cases covered by domestic law and are liabilities which are not primarily owed to sovereigns and which may be traded.

Non-tradeable liabilities to other sovereigns governed by foreign laws are where we are headed now. This is very dangerous. Also, if politicians or civil servants in Ireland think these debts will necessarily be forgiven or restructured then they better get their history books out and see what happens when creditors are in trouble too. The political mood in creditor nations is uncertain and beyond our control. We cannot depend on future restructurings.

sarko is sinking in the polls and is quite happy to play the populist to get good press.but he will still be political soufflé in may 2012.

@Kevin o’Rourke et al.

Don’t know when your last trip to France was, Kevin, but I’m sitting in Paris reminding you guys that you were “warned” about this before Christmas.

It doesn’t matter how disingenuous Sarkozy and other EU zone politicians are being ( both leading and following their electorate/taxpayers), the fact remains that our ability to grow is overwhelmingly dependent on what I’ve underlined before is MOBILE international investment.

Rightly or wrongly, the perception of massive transfer pricing in Ireland by MNCs exporting to EZ economies apparently less able to apply similar CT rates is turning Ireland into a sitting target at a time when we don’t appear to be acknowledging the unsustainablity of our “industrial” so-called strategy, much less working on a new strategy.

I wonder how the French Public would react to arguments such as “Once the EU start harmonising corporate tax rates, what is to stop them from harmonising retirement ages etc etc”.
I reckon that Sarko will think twice about making statements like that.

@ zhou_enlai

The problem with putting on the blame on foreigners is that your alter ego in Germany is just as indignant about having to face even higher taxes to fund your high paid medical consultants and many more.

The Bundesbank estimates that German banks have only €25bn actual exposure to Irish borrowers.

So should you move you relocate the target of your indignation?

@Michael Hennigan

That is the point Kevin O’Rourke is making. That is the point I was making when I said that incompatible political limits in counterparty countries lead to serious probalems. Taxpayers listening to narratives that cause them to get angry with each other. Meanwhile, capital tiptoes towards the exit.

@seafoid

It goes back further than that to MAy during the Greek crisis when Sarkozy shouted at Trichet to buy bonds and Trichet promptly mounted his high horse. I cannot find the FT timeline recounting how europe went to the brink but there is reference to it in the article on Trichet linked below.
http://www.ft.com/cms/s/0/8bbaa714-5f8b-11df-a670-00144feab49a.html

@Kevin O’Brien

Good point. I have allready made the same point in a long post, which I can see but which hasn’t appeared yet to anyone else because it says that it is ‘awaiting moderation’. I think the reason is that it has a couple of links.

I suggest that the Irish Government offer the following deal to the French Government: “Ireland will raise its Corporation Tax rate to that in France immediately, provided that France raises its average age of retirement to that in Ireland immediately.” (currently 58 in France v 63 in Ireland)

I look forward to France bringing in the same taxation as Ireland in all areas where France charges lower rates and could be accused of unfair tax competition. These areas might be said to include;
VAT
Alcohol taxes
Vehicle “Registration” Taxes
Income tax

I believe that the proportion of total tax made up by “corporation tax” is about twice in Ireland what it is in Germany. So corporations are already over-contributing compared with Germany.

BYW: I find it strange that on an economics site that no one has mentioned tax incidence. Corporations pass on the payment of corporation taxes to employees (lower salaries), customers (higher prices) and stockholders (lower dividends). The more open the economy, the higher the burden paid by workers.

France is closer to balancing their budget than Ireland is. For that reason alone I’d advise against using Irish taxation systems & rates.

Low corporate taxes are making companies moving profits through Ireland & even with this free money Ireland can’t balance its budget. The question shouldn’t whether or not to increase the tax rate, the question should be how much it can be increased to maximise tax revenue. Would half a percent cause profits to be re-routed away from Ireland? Would 2 percent? Not increasing it at all is in all probability ‘selling’ it to cheaply.

KO’R says;

Of course ordinary French and German taxpayers are going to be angry at lending their money to an insolvent state with lower tax rates than their own. Why wouldn’t they be? Of course ordinary Irish taxpayers are going to be angry at having to pay for high interest loans designed to bail out foreign banks. Why wouldn’t they be?

And while ordinary Europeans get angry with each other, with unpredictable political consequences, capital walks away scot free.

There is a useful word, which I find conspicuously absent in the above extract. A word which should not be left out of such a paragraph. A word, savings, is a word used consistently and to great effect by the author and money manager Peter Schiff in his book, Crash Proof, 2.0. In the case of Schiff, he talks about the north American citizens using the savings of other nations, instead of generating their own. Indeed, if you are to believe some of the ideas of minister for Energy, Communications and Natural Resources in Ireland, Mr. Eamon Ryan, there is a similar at work. In that, the unit of power (or spending), that you do not use, it what generates wealth. Rather than explain this idea in greater detail, I only refer people to investigate Mr. Schiff’s book.

But the fact is, in my mind at least, that in 2011, the Irish taxpayer is effectively selling its future health insurance policy payments, to shore up our wrecking banking system. This is a point I tried to argue in a recent blog entry, Cold Turkey. Which I know is highly inflamatory, and I am distressed that my rare, un-structured contributions to the national debate, have now been reduced to that. Disclaimer: I am nothing like a rampant socialist. Indeed, I would like nothing better at this moment to sit down and read a chapter of Alan Greenspan’s autobiography, or leaf through F.A. Hayek. But I hope that I keep such ideologies to myself, and do not try to impose them on a whole island population, such as is the case, with Ireland visa vis the European Union experiment. BOH.

MNCs have been making bumper profits in Ireland for almost four decades. Sarkozy has a point. Ireland has operated as a tax haven for so long that the idea of their being an alternative seems unthinkable.

Let me repeat a story I told before. An Italian accountancy firm I deal with in Tuscany in a regional town told me (via dinner with its principal) that it lost 60% of its domestic clients to Dublin after the euro was introduced. CT was sited as the biggest attraction followed by various reliefs on patents, leasing etc.

During the years of the Celtic Tiger there was an opportunity to adjust CT someways towards meeting the EU average. Instead it remained unchanged (and as well CGT was reduced to hurry the bubble along nicely). Now the Irish government is bleating about the punitive bailout rates while still demanding that CT remain as is. A small demonstration of reciprocity may not be far away.

And again to repeat a point I made before. It is in the MNCs own interests to preserve as much of the Irish tax regime in place (if you can call it a tax regime at all) as possible and a signal from them that would countenance a hike of 2% or so may be required.

Aside: we pay CT in our business but too small to be adversely affected by a rise of the order suggested.

Hi Michael Hennigan

Very interesting stats from the US BEA
Though i would be fairly sure that the loss of income has continued for the high tax countries since 2002? Is there any more up to date data?

Also as a matter of interest does anyone know what the average % Corpo tax rate is which is paid by US owned MNC’s in ireland?
We know google is only 2.4 but what is the average? Is it anywhere close to 12.5 or is avoidence of even this very reasonable rate rife?

@ Jesper

the problem with raising corporation tax rates at this juncture is that people would lose trust in the “low Irish corporation tax rate” being a key part of the economic policy. If you can move it higher this time, why not again in a couple of years? Some MNC’s would undoubtedly start to price in the likelihood of Irish rates fully converging with their European neighbours.

Also: “France is closer to balancing their budget than Ireland is. For that reason alone I’d advise against using Irish taxation systems & rates.”

So we can’t point out the obvious distortions in taxation or general economic framework (pointed out above) that work in France’s favour until we balance the books? Doesn’t seem like a very open debate. We created large budget surpluses for the first half of this decade while France and Germany repeatedly broke EU rules on excessive budget deficits. You could argue that it was their role-model which allowed the likes of Greece to maintain a perma-deficit, and the likes of Ireland, Spain and Portugal to run clearly, with hindsight, lobsided fiscal models. Thats not to pin the blame on France and Germany, but simply to point out that they don’t seem to have a problem with budget deficits when it suits them. We could have argued for France to massively overhaul their economy and tax systems back in 2005, but alas we didn’t.

“France is closer to balancing their budget than Ireland is”

For the time being. Due to demographics, the current social model in France is not really sustainable in the long term. They have to massively overhaul their economy either way.

We shouldn’t be too surprised. Sarkozy is just trying his ‘blame the foreigners’ trick again. At least he hasn’t (yet) started rounding up Irish migrants and deporting them based on race.

More interestingly there are more serious moves to harmonise the tax base. I think this makes sense, but as we can be a bit stubborn I think we should ask for something in return (maybe like getting the French government to abide by EU treaties themselves).

@Eoin,

Ireland is walking around with a begging bowl as it can’t fund its government but the Irish taxation model is something good and something others should follow? 😀

Point out all the weaknesses you want in other countries tax systems, however, it still won’t help Ireland to balance its books. Ireland needs to look at its own taxation system & take appropriate action to balance its books. The rest of the EU don’t care how the Irish will balance them, but until it is balanced then be prepared to be asked tough questions by your creditors.

The question has been asked by Sarkozy, what is the Irish answer?

It is a little misleading to compare income tax rates and corporation tax, it is not possible for the Malone family to move to thereby depriving the Irish government of revenue unless the Malones can move their source of income with them as well (and their social capital).

MNCs on the other hand can fairly easily move non heavy industry operations, and our absurdly low corporation tax rate really is beggaring our neighbour.

We need to work on a strategy for slowly raising the corporation tax in tandem with EU wide initiatives that make tax avoidance much more difficult for MNCs. If we predicate raising our CT on collective EU action we could also give ourselves many years to boil the frog of FDI capital flight.

Anyway, what the models are for growth with higher corporation – would it encourage MNCs to reinvest capital immediately rather than sit on it/return it to shareholders?

Is there not comparative stats somewhere on this site that shows our Corporation Tax as a % of GDP is the same or higher than other devoloped countries. A high nominal rate does not necessarily mean a high tax take. The French are very good at cooking the books with subsidies,credits, reliefs etc etc.

I really think that portraying France as a model of fiscal rectitude is daft. According to Finfacts (link below), France has run a budget deficit every year for 35 years. Ireland has had numerous surpluses in that time. In the past 20 years, Ireland’s deficit has been smaller than France’s (or surplus greater than France’s) much more often than the other way round.

http://www.finfacts.ie/irishfinancenews/article_1020540.shtml

The Finfacts link doesn’t give figures, just a graph. But, looking at it closely, it seems that France’s deficit was 8% of GDP in 2010, up from 7.5% in 2009, so still increasing. Ireland’s deficit at worst stabilised at 11.6% of GDP in 2010, and may even have fallen to 11.5% (depending on Q4 GDP figures).

“The question has been asked by Sarkozy, what is the Irish answer?””

How about this “you keep silent about the Tax rate – and we will keep silent about your timebomb social system”

There will be no special cases for “harmonisation”. If it is introduced, it is going to be introduced across the board sooner or later; subsidies, tax rates, retirement ages etc.

Can we get someone to go on French TV to point that out?

Personally I think it is a sad state of affairs that the tax rate is our only good card we have left , from the fourteen that drew Intel to these shores.
If we got the other thirteen back – maybe we could raise it up in a few years.

Our corporation tax take is high because, through sheer luck, we have a lot of very profitable corporations.

Further to the Finfacts article that I linked to in my post above, it contains a discussion of the long-term outlook for France’s budget deficit. It makes a couple of points that, by co-incidence, are similar to points I made myself earlier today in the thread on the Baltic countries. This is what they say:

http://www.finfacts.ie/irishfinancenews/article_1020540.shtml

“In the current issue of the IMF’s Finance and Development magazine, Kevin Cheng, Erik De Vrijer,and Irina Yakadina, write that population aging is the most deep-seated of the chronic issues confronting France. According to a study by the Organization for Economic Cooperation and Development (OECD), France’s old-age dependency ratio – – the ratio of citizens over age 65 to the working-age population – – was about 27% in 2007. This ratio is projected to rise to 42% by 2025 and 58% by 2050.”

“The authors say likewise, the number of persons between ages 20 and 64 for every person over age 65 is expected to decline from 3.5 in 2010 to just 2 by 2040, increasing pressure on the current pay-as-you-go pension system. Simply put, the elderly are going to consume an increasingly large amount of France’s resources. Large-scale retirements have already begun and will likely intensify in the years to come.”

So, key points:

(a) The ratio of citizens over age 65 to the working-age population (20 to 64) in France was about 27% in 2007. This ratio is projected to rise to 42% by 2025 and 58% by 2050.

I did a calculation of Ireland’s figure for 2010 from the CSO Poulation and Migration Estimates April 2010. Ireland’s figure was 18.7% in April 2010, and relatively stable at that rate. It will stay relatively stable, although increasing a bit, but nowhere near as much as in France, as long as Ireland’s birth rate stays high.

(b) The number of persons between ages 20 and 64 for every person over age 65 is expected to decline from 3.5 in 2010 to just 2 by 2040.

Again, I did a calculation of Ireland’s figure for 2010 from the CSO Poulation and Migration Estimates April 2010. Ireland’s figure was 5.4 in April 2010, and again relatively stable at that rate.

So, based on demographics, Ireland’s long-term budget outlook is far better than France’s. And that is based on analysis simply of the age-groups. It doesn’t even take account of the fact that the average age of retirement is far lower in France than in Ireland (58 v 63) and that a far higher percentage of the 55-64 and 60-64 age-groups are still working in Ireland than in France.

The really frightening thing is that France is by no means the worst demographically in the continental EU. Germany, Austria, Italy, Spain and most of eastern Europe is much worse.

I think that the Irish debts will never be paid back in full. The other European taxpayers will have to come to the rescue and absorb a big loss when it will be clear that the Irish economy cannot get out of its recession and pay what is owed to the IMF and its partners .In the meantime Ireland should cling to its corporate tax rate, which is one of its only competitive advantages, but I hope that when Ireland comes back for a new round of financing ,the other countries will have the common sense to make a doubling of the corporate tax rate a precondition to any new sacrifice in Ireland behalf.

@Kevin,

I would argue that it is wise not to antagonise the few that are still willing to fund Ireland. If such an answer is given it might release the funds, it might stop them altogether or it might not have any effect whatsoever (except in diplomacy & what small country needs friends…)

France might be likely to have problems in the future. Ireland has problems now & I’m not willing to bet Ireland won’t have problems in the future. The issue is that if Ireland doesn’t sort out the current situation the future is of pure academical interest.

@ Jesper
Fair enough. It wouldnt be politic at all for Ireland to use this as a negotiating position. We should commit our energies to a genuine meaningful overhaul of the economy, and not get mixed up in games of brinksmanship.

But by the same token – it is in Frances interest that Harmonization stays off the negotiation table too.

Harmonisation is a Pandora’s box. Once the EU starts harmonising some things, what is going to stop them harmonising others afterwards? It wont be just Ireland asking that question.

I reckon that demographics will give rise to serious economic problems for European countries in the future (lets say – in 20-30 years). Ireland’s demographics suggest that we will be in a better position than most when the time comes.
(Arguably we are not so well positioned for some other things, but I wont digress.)

@ Zhou

‘Our corporation tax take is high because, through sheer luck, we have a lot of very profitable corporations’

You forgot to add one of those funny little red faces.

@Kevin,

I totally agree about harmonisation.

that being said, I’m all for market enforced realities. Both Ireland & France will have to limit public spending to what tax-revenues their respective population is willing to pay. Ireland & France will both have to make some tough choices. It seems likely that Ireland will have to make its choice sooner than France.

Income tax could be raised without (?) it setting an expectation of further raises to come. VAT could be raised without (?) it setting an expectation of further raises to come. Corporation Tax should be the same.

I don’t quite understand it nor why a raised tax can’t be lowered again once the current situation has been resolved. Short term survival is a requirement to survive the long term.

@ Jesper

“I don’t quite understand it nor why a raised tax can’t be lowered again once the current situation has been resolved. ”

Because the MNCs could up sticks in the mean time. Maybe it is an empty threat, but what if it isnt?

I lament that fact that the tax rate is the only remaining attraction of the 14 that drew Intel to Ireland, and that is the only thing keeping them here, but that is the reality.

We should probably get the other 13 back (that gets my vote), and we could then raise the corporation tax without threatening the economy. But that wont happen overnight.

@Dominique Jean-Raymond

These are the IMF/Citgroup forecasts for GDP growth between 2010 and 2015 that came up on another thread earlier this week.

US +18.5%
IRELAND +15.1% <<<<
UK + 14.9%
Hungary +14.8%
Germany +9.9%
Belgium +9.2%
Japan +8.4%
FRANCE +6.4% <<<<
Italy +5.0%
Spain +3.0%
Portugal +2.9%
Greece -0.8%

There seems to be a certain amount of divergence between the IMF forecasts and your own.

(cough) Andorra: The two Heads of State are the President of France and the Bishop of Urgell in Spain. (cough) Monaco, successfully leant on to restrict tax free-status to residents only if they are not French tax residents …

@Kevin,

I think we’re both trying to find the optimum CT rate. It might be 12.5%, it might be something different. Analysing & debating the CT rate could possibly clarify whether or not it is currently at the optimum.

As you say the 13 reasons that ceased to be true might become true again. Some might even be true already; it would not be unheard of that things that aren’t entirely true is being said in public as a negotiating tactic.

An increase in the cost of the tax bill would be compared to the cost of relocating.
I believe there are increases in the CT that could be made that would increase the tax-take.
Increasing it now would generate goodwill towards Ireland from its creditors & if presented as the lesser of two evil to the MNCs while blaming Irelands creditors it might be sold to them as well.

On the whole, I think a small increase could & should be done & by all means blame Sarkozy. He won’t be offended, he’ll see it as a victory 😉

@ Jesper

I wouldnt have any problem with raising the CT in the not-too-distant future, but in the short term it functions as an economic life support. Switch it off and we are dead. Instantaneous default.
IMF’s negotiator Chopra evidently must have come to that conclusion.

The low tax strategy was adopted in the mid nineties. We haven’t meaningfully changed the game plan since, and that is terrible.

“Blame Sarkozy” I like your thinking.

@ Jesper

at no point did i recommend the Irish taxation model to anyone. What i said was that like all models, the French one has its own flaws, and we have as much right to point out the problem with theirs as they have to comment on ours. Thats how a debate works.

As many have noted on this thread, the French model has far more consistently ran up deficits over the last 15 years than the Irish one has, so i’m not sure the French are particularly qualified to give us advise. Given that our model ran up large surpluses for many years, it’s obviously not completely without merit, so perhaps rather than ditching it completely we should look to see how we can amend it to make it more stable and sustainable. I believe thats what both the current government, just like the next one will, are trying to do.

In terms of increased income tax, in comparison to the French rates, is it possible that their ability to retire 5+ years earlier than Irish workers is a decent justification for their higher rates/our lower rates?

Btw, putting a smiley face after a comment about the Irish going around “with a begging bowl” probably isn’t a smart idea if you want a polite debate. We’re horrified that its come to this stage, although it’s fair to say that much of that ‘begging’ will be going to bail out the rather disastrous investments of French and German banks and insurance companies. Another reason why Sarkozy probably shouldn’t raise too much of a fuss about our corporation tax rate.

@ Cathal

“If we were to raise our CT rate to, say, 20% then there would be an exodus of companies from Ireland….

And they won’t be flocking to France.”

For what it’s worth France actually fairly regularly comes at or near the top of the FDI inflow leagues.

@ JtO

I don’t understand how tax harmonisation would amount to Ireland subsidising French early retirement. It’s clear enough how our low corporate tax (however entitled we might be to it) could have a negative impact on others, including France. It’s not clear how French early retirement has a negative impact on Ireland. You seem to be importing this idea from the earlier bailout of Greece, when it was pointed out that the Greeks retired earlier than the Germans but it doesn’t seem so relevant here.

There are important imminent developments as regards to CT, but the tax rate imposed by Ireland on profits apportioned to Ireland is not one of them, notwithstanding populist statements by any politician. It is important to be asking the right questions.

The EU Commission will produce proposals for a CCCTB in Q1 2011. One important question is whether this will be mandatory or optional, both at company level and country level. The EU may progress this via ‘enhanced co-operation” as I think there is no way Ireland and the UK will agree to this, and I think that participation cannot be forced via QMV. The whole CCCTB issue is very complicated, particularly as it may conflict with OECD tax rules, so you have two sets of complicated rules in play. The Dept of Finance participate in the ongoing EU Commission discussions. Perhaps a few Dail questions could be asked on this issue, to focus attention and get some clarity on the important issues as regards the CCCTB rather than on the headline tax rate itself (which is important too, but which is not under threat).

This blog entry contains a little information on the apportionment formula being proposed, as well as some opinions on the matter which I imagine are widely held outside Ireland.

Ireland is swimming against the tide on the apportionment issue. In the medium term I believe the rules will change and Ireland will be left applying its 12.5% tax rate on a far reduced pool of money. The reality is that much of the transfer pricing used by the MNCs based in Ireland is done for massive tax avoidance, and that Ireland is a key cog in the chain of worldwide tax avoidance measures, with the “Double Irish” and “Dutch Sandwich” even making it to Dilbert cartoons. This is hardly the basis of a sound industrial strategy.

@ James

we’d be subsidising their ability to retire early, if they forced us to lower our corporation tax rate in order to make their economy more competitive in relative terms.

@BEB.

well put ! As the French government cant push through economic reforms to maintain competitiveness without every street corner being the scene of a massive protest, they are trying to make their competitors less competitive ( we cant blame them for giving it a shot)

A social model as generous as the French model has to be paid for, and demographics indicate that the cost is going to get higher and higher . They might bankrupt themselves if they are not careful.

“probably isn’t a smart idea if you want a polite debate.”

Come now, let’s all be friends.

@JohnTheOptimist
Or:EF has revised its growth forecast for Ireland down to -1.5% in 2010 and -2.3% in 2011 as public sector spending cuts, and tax hikes announced in Budget 2011 come into effect and the continued flow of migrants out of the country cool demand. This growth rate is far bleaker than the Government’s assumed GDP growth of 2.75% in each year between 2011-2014. Indeed, EEF forecasts only 0.8% growth per year during that period suggesting that Ireland’s fiscal targets may not be met as anticipated by the Government.

http://www.ey.com/IE/en/Newsroom/News-releases/Press-release-2010—EY-Winter-Eurozone-Forecast—Dec

I probably could find worse!

Any forecast in a situation like this is an exercise in futility.The level of Irish private debt is enormous and nobody knows how it can affect the level of the savings rate .Nobody knows what kind of government you will have next year and what it will do .In order to have an export-led recovery you will need a strong demand from Great-Britain and the rest of the Euro zone,which is far from being a probable outcome.

I hope your forecast will be the right one,but I doubt it.

Have a look at the gap between GNP and GDP. By my reckoning it has nearly doubled in the last 12 years… The effect that Mr. Sarkozy (irritating little oik that he is) is complaining about is clearly evident.

@ Eoin Bond,

“we’d be subsidising their ability to retire early, if they forced us to lower our corporation tax rate in order to make their economy more competitive in relative terms.”

But again, Ireland’s low corporation tax, justified or not, clearly has a negative impact on other countries. You can’t really say the same about French early retirement – on the contrary, raising the retirement age would presumably make France more competitive. So by retiring early the French are (on one interpretation of what’s going on in the French labor market) trading income off against leisure. This doesn’t really affect us. If they decided to retire later and thereby earn more money for less leisure this would not change anything about the effect of our tax rate on them and other countries.

@ Kevin O’Brien

Every country is an organised hypocrisy of some degree.

The Calvinistic Swiss lived on the hog while facilitating dictators in plundering the wealth of their countries; it has taken decades to force changes in a system that like Shakespeare’s Devil could rationalize by citing Scripture for his purpose.

In recent times, Germany has made it more difficult for its wealthy tax dodgers to use a tax haven like Liechtenstein.

We have done well from lax transfer pricing rules and possibly up to half our corporate tax receipts come from tax haven activities; morality and international affairs are strange bed fellows. International tax evasion has been a big plus for Ireland.

It’s said all is fair in love and war but let’s not try and present it for what it isn’t.

The EU isn’t pushing for tax harmonisation; simply, should say Google be obliged to pay some tax on its UK revenues to the UK Treasury rather than to Ireland or not pay any tax via Bermuda?

Maybe there is a case for us to sit on a high horse and insist that foreign lenders should bear all the costs of their stupidity and foreign countries should also be blamed for not setting rules that would make profit shifting more difficult?

Tax expert, Martin Sullivan, said in testimony to the US Congress last year: “There is overwhelming evidence of inordinate profit shifting by US multinationals to tax havens like Bermuda, Switzerland, Ireland, Singapore, and the Cayman Islands.

Average per-employee profitability in these five tax havens compared to other foreign jurisdictions is ten times larger than in other countries.

Over the last decade, the transfer pricing problem has gone from bad to worse. Between 1997 and 2008 foreign profits of US multinationals grew by 163% while measurable business activity grew by only 97%.

Pfizer booked more than 90% of its profits outside the US even though only about 40% of the company’s sales and assets were outside the US.” which focuses on public subsidies for big companies.

This is from a blog post on a book titled Investment Incentives and the Global Competition for Capital, by a Prof. Kenneth Thomas.

He highlights how big companies gain large public subsidies from the increasing competition for jobs.

“Thomas tells how Dell moved a factory from Ireland to Poland in 2009 and then months later closed a four-year-old factory built in large part with North Carolina tax dollars. The Irish taxpayers gave €53.5 million to Dell, while North Carolina gave as much as $242 million. But when the Poles offered €54 million more, it was enough to get Dell to move about 1,900 jobs to Lodz.”

http://www.tax.com/taxcom/taxblog.nsf/Permalink/UBEN-8CSNLH?OpenDocument

@ Eamonn Moran

This from 2008, in relation to 2004 on a comparison of US manufacturing activity in 10 countries:

The five countries with manufacturing assets earning the highest returns—the Netherlands (14.9 percent), Bermuda (20.3 percent), Ireland (17.3 percent), Switzerland (10.3 percent), and China (10.4 percent) — all had effective tax rates (income tax divided by before tax profits) of less than 12 percent.

The five countries with the lower returns — Canada (6 percent), Japan (6.5 percent), Mexico (5.4 percent), Australia (9.3 percent), and the United Kingdom (1.8 percent) — all had effective tax rates

http://www.law.nyu.edu/ecm_dlv3/groups/public/@nyu_law_website__alumni/documents/documents/ecm_pro_063149.pdf

@ MH
I see what you are saying. I didnt realise those profit transfer arrangement count as FDI.

I have no problem with a higher tax rate from an ideological point of view.

Other countries can be competitive with a 30% CT rate. Britain seems to do well. If our industrial policy over the past ten years wasn’t a complete joke, we could got on just fine with a higher rate.

As Jesper pointed out , long term stability is predicated on short term survival. That means keeping the rates as they are, surely.

You are right. The EU doesnt want to push tax harmonisation, they probably realise all the grief that will cause them. The french politicians were the ones calling for it.

@ MH “Every country is an organised hypocrisy to some degree”.

Thanks, Michael. And now could we get away from the irritating ( to the French as much as to anyone else!) Mr. Sarkozy and get to the two key strategic issues facing Ireland that seem to be generating some consensus in these discussions.

1.) While Ireland ( and the EU) works through its immediate currency ( future of the €!), banking, liquidity and solvency challenges, Ireland Inc. is facing the fact that the only one of Intel ( Andy Grove’s) 14 reasons for investing in Ireland has been reduced to one, our CT rate.

For hypocrital, valid or invalid reasons, and in addition to all our other problems, this CT rate is coming under attack from European partners who, again rightly or wrongly, perceive themselves to be already putting themselves under threat by bailing us out just like they had to do for the dreadful Greeks.

The only way Ireland can grow itself out of at least some of our problems is through exports from, in very large measure, the MNCs who are only in Ireland because of the CT rate.

2.) While we are battling to save our CT rate, we are faced with the reality that, even if we win this battle ( the war is ultimately lost as harmonisation, CCCT or whatever it will be called gradually becomes a reality) the MNC exports-fueled growth that will ultimately “save” us is NOT solving, and will not, solve the slight problem of almost half a million unemployed.

The only possible conclusion is that our current “industrial” policy, which I have forcefully suggested is NOT a strategy but a series of slogans, is unsustainable and we therefore need a NEW STRATEGY.

There is a third key element directly linked to the two points above and that is “emigration”.

Hugh Sheehy, in a separate but related thread asked for clarification on the point I’m trying to make here so I’ll try to explain.

We need to completely change our perception of the FACT that hundreds of thousands of young ( and older) Irish people will be “emigrating” over the next few years.

We have the choice of moaning about and bewailing this fact or incorporating this ( I repeat) FACT into the NEW “INDUSTRIAL” STRATEGY that is clearly needed for BOTH the domestic and “export” sectors in Ireland.

@ James

the rate of corporation tax is just another cost of business. I don’t think i’d view the lower rates of pay in other countries as “having a negative impact” on Ireland, even though they obviously affect our competitive position. By your view, having a pro-business government would automatically “have a negative impact” on France. You have to look at the overall package. We have low taxes, but high energy costs and wages. Such is the world of competitive advantage.

@MH
as a matter of interest – how much tax revenue is generated from these paper profit transfer companies in the IFSC, do you reckon?
I confess that I didnt factor them into my arguments as much as I probably should have.

@ Micheal Hennigan
Thanks very informative as usual.

I see in figure 2. of the link we are actually a more profitable tax haven in the services industry than Bermuda for US MNC’s.
Where do we collect our prize?
I also agree that all countries are organised hypocrisies to some degree.
Someone mentioned the French Tax havens you could also add the advantage they gain from their previous colonial plundering,and current weapons sales strategies.

Even the Nordics can turn a blind eye when it suits them.

But perhaps just for once doing the right things for the right reasons will actually benefit us?

We all know who the big winners are in the Corpo Tax race to the bottom are the MNC’s and that this is to the detriment of tax intake in the whole of Europe (though admittedly not Ireland).
Some people actually argue that this transfer of capital led to the European banks over lending (due to their increased level of deposits) especially to the periphery (The Germans were too smart to take it).

But I know there are massive unintended consequences

As a matter of interest
What do people think would be a worse outcome for Ireland?

Having to leave the Euro or having to harmonise our Corpo tax.
Because in the end we could be left with that choice.

Corpo Tax take for 2009 3.900 billion
Corpo Tax take for 2010 3.923 billion

They account for about 12-13% of total tax take.

@ Eoin Bond,

I don’t think I disagree with your most recent post – but then I note it doesn’t say anything about why Ireland has any reason to bemoan French early retirement!

More generally I think one can perhaps hope to distinguish between policies that make a country more “competitive” by raising its productive capacity and policies that make a country more “competitive” by beggaring its neighbours. (To take your example of wages, I would actually cite German wage suppression over the past 10-20 years as a candidate for the latter category).

I place competition in inverted commas because I think it’s important to remember that international economics is not in fact a zero-sum game – it should be possible for ever country to gain from every other country’s productivity gains. But the Irish corporation tax strategy seems fairly obviously a beggar-thy-neighbour, zero-sum based one.

@EM

OK – how much of that comes from the companies who actually operate here, the likes of Google, Intel and Pfizer, and how much from the Double Irish stuff?

“Having to leave the Euro or having to harmonise our Corpo tax”.
A false dichotomy surely – both event would be generated by different mechanisms.
The Europeans cant kick us out – it is political suicide – although market forces could potentially do so.

@ James

on the issue of French retirement, i dont claim that French retirement ‘hurts’ us (and to be clear, i dont think our low corp tax rate ‘hurts’ them either), but simply if they didn’t want to retire so early, then they probably wouldn’t have to tax corporations so much. The early retirement, or increased social benefits, is one of the justifications they can have for higher corporation taxes.

Basically the arguement would go that they have made a societal and cultural decision to retire earlier than us and receive greater public and social services, and they want corporate taxes to pay for that privilege. We have decided, whether correctly or incorrectly, that we would rather have increased employment and investment rather than early retirement and greater services, and so have chosen not to tax corporations excessively (in our view) as a result.

@Eamonn Moran ( “fed by” by Michael Hennigan)

So, to summarise ( so far) this “Divide and Conquer” discussion, US MNCs ARE extensively using Ireland for massive transfer pricing and as a tax haven for products and services sold into EZ economies which, to fund their own deficits ( Germany excepted?) apply higher corporate taxation thereby discouraging ( comparatively) the same US corporations from locating in the economies and markets that are buying these products and services from Ireland.

In fact, it would appear, Sarkozy, disingenuous as he is, is RIGHT about Irish fiscal dumping!

In any event, whether under the mooted CCCTB, or another name and, sooner or later, CT WILL become at least MORE harmonised across the EZ thereby putting increased pressure on the MNCs to question the sustainablilty of their decision ( particularly for new projects) to locate in Ireland for export to EZ markets!

The lynch-pin of the export-fuelled growth that will ( in 5 or ten or 15 years) get us out of our difficulties is therefore NOT sufficiently robust to form the basis for Irish “industrial” strategy. QED?

Or maybe the domestic Irish economy will take up the slack?

@ Eoin

“and to be clear I don’t think our corpo tax rate ‘hurts’ them either”
Well it does a bit financially but the question is if it hurts them more than they hurt us in other ways e.g. fishing in our territorial waters, being happy to charge us 5.7% for the 67.5 billion loan etc.

Its all horse trading and they have been doing it a lot longer than us and the big boys with old money always do better than the little one. Its all about choosing our battles I guess

@ Kevin O’Brien

You raise an interesting point about the IFSC as it is in the services area where there is potential for high earnings with a small staff;

As to how much Ireland gains in terms of tax from profit shifting, all we can say is that it’s significant.

The Wall Street Journal’s Nov 2005 article on Microsoft’s 2 companies operating from a Dublin law firm, gives an indication (they were later converted to unlimited status to keep the data secret).

“The four-year-old subsidiary, Round Island One Ltd., has a thin roster of employees but controls more than $16 billion in Microsoft assets. Virtually unknown in Ireland, on paper it has quickly become one of the country’s biggest companies, with gross profits of nearly $9 billion in 2004.

Ireland’s citizens may not have heard of Round Island One, but they benefit greatly from its presence. Last year the unit handed the government of this small country of four million citizens more than $300 million in taxes.”

http://www.hondoazul.com/MSIrish.pdf

@ Richard Fedigan

The local firms are unlikely to pick up any slack.

UK defence industry giant BAE Systems announced today that it’s to acquire Norkom, one of the few high tech companies on the Irish Stock Exchange with potential.

Despite all the blather about the ‘smart’ economy, the default exit for venture capital firms is a sale to a bigger overseas firm before there is any significant benefit for the Irish economy.

Irish food and drinks exports were 4.9% of the total in 2010 and they rose 11%; fell 15% in 2009 and dipped 6% in 2008.

Ireland may soon be in deficit with the UK in the sector, thanks to Tesco.

UK food and drinks exports have grown for five straight years and Ireland is its biggest customer.

UK food and drinks exports grew by more than 5% in 2009 when Irish exports fell.

In 2008, Germany became a net exporter of food and drink for the first time according to modern trade data.

Despite the surge in exports, direct jobs in the international trade and services sectors are back to 1997 levels when the workforce was 25% smaller.

@MH

I realise I was overlooking that stuff. I tend to think in terms of “tangible” companies, with a workforce, payroll etc. I suppose most people would.

@Michael Hennigan

“The local firms are unlikely to pick up any slack”.

You’re absolutely right, of course, Michael. I was being ironic when I suggested they could, in an attempt to pillory what you correctly term all the “blather” about the ‘smart’ (-arse!) economy.

“The Food Island” ( Bord Bia slogan) is another blather bromide that doen’t bear close scrutiny

It’s gratifying that Irish food and drinks exports “grow” sporadically but I’m sure I don’t need to tell you that our main “food” exports, dairy and meat, ( our drinks exports are almost exclusively supplied by “production units” of MNCs Diageo and Pernod Ricard) are relatively low value added commodities and ingredients, or retailer brand. In substantive terms, again with the exception of “multinational” drinks, There are NO identifiably “Irish” products on sale in export markets around the world and the only substantive private sector services brand known to overseas consumers is RyanAir.

So, we need exports to grow ourselves out of the mess we’re in, 90% of our exports come from MNCs ( including 15% of the “indigenous” food sector exports – drinks), we’re battling to defend our 12.5% CT rate, which is, to all intents and purposes, the only reason MNCs are in Ireland, against somewhat justified accusations of fiscal dumping from the EZ countries that are bailing us out. And, these EZ countries are the customers of the MNCs we brought to Ireland to benefit from fiscal dumping “on” their markets.

If there were a CEO of Ireland Inc., he/she would be insane not to be calling up his executive team at home over the weekend to say something like ” I’m scheduling a meeting first thing Monday morning to initiate a root and branch review of our “industrial” policy. The current policy is defunct. Forget about the banking crisis, the next government will have to deal with it and we, Ireland Inc., need a new strategy now.

From outside Ireland I’m not aware of any party proposing the establishment, as a priority for the first year of the next government, of an organism to review ( slash, burn or validate) all other organisms and government departments with a view to formulating an entirely new “industrial” strategy for Ireland Inc. ( preferably WITHOUT a slogan.

Further to the debate on Corporation Tax, terrible news for the doom pornography industry just out. According to today’s Irish Times, Intel have chosen Ireland as the site for major development. The Intel General Manager, one Eamonn Sinnott, is quoted as follows:

“Declines in energy and construction costs over the last three years had helped convince Intel to choose Ireland. But he said MAINTAINING THE 12.5 PER CENT CORPORATION TAX RATE IN THE FACE OF EUROPEAN PRESSURE WAS KEY. If we had signalled we were willing to trade our corporate tax rate they would have factored that into their calculations and that would have a different result than the one that we have.”

But, then what would he know in comparison with all those academics who have advocated increasing Corporation Tax, but who have never worked one day in business or commerce in their lives? The debate is now closed.

This announcement will send shock waves through the doom pornography industry. I predict imminent lay-offs. Have not the pages of Politics.ie and Property Pin been filled for the past few years with confident and gloating predictions that the Intel plant would close? In contrast, looking back in a few years time, this announcement will be seen as an early forerunner of the mid-decade construction boom in Ireland.

@JohnTheOptimist

Ain’t Nuttin’ closed about dis debate, John.

I am NOT advocating raising Irish CT, have never been an academic, have worked in private industry in and outside (mostly outside) Ireland for over 35 years, gave up pornography long ago, and am writing from continental Europe where this debate is RAGING.

That it is raging for disingenuous, populist, nationalist, xenophobic or other reasons is irrelevant.

Europe is, and is perceived to be, in crisis.

Ireland is, and is perceived to be, in crisis.

Ireland Inc. will, and should, battle to keep our low CT precisely in order to keep the Intels of this world exporting us out of crisis. It’s all we’ve got left, apart from our emigrating people.

Europe, in order to survive in an effective G2 world will have to consolidate, and the move towards de facto fiscal governance is under way whether it’s driven by the European consumer-citizen ( who doesn’t really exist) or the German “paymaster” consumer-citizen who is fed up with paying for everyone else. ( or at least THINKS he/she is)

Part of this consolidation will be more harmonisation of CT rates and this will threaten the SINGLE plank supporting both Irish “industrial” policy AND our ability to get out, in time, of the mess we’re in.

Very simply, John, I can see NO evidence of a response, much less anticipation, of these FACTS in serious political or economic debate in Ireland.

Wake up! The rest of the world is not sleeping very well just now. The US ( in great difficulty) and China are awake. Europe is floundering badly. Ireland is to some degree understandably preoccupied with an ongoing, essentially banking crisis which has brought about a political crisis. (Essentially, we have no government just now and won’t have for six months, not even a government resulting from a broken political system!).

Sorry, John, but that’s the way it looks from “out here”.

@ JtO

some truly excellent news i think everyone should be delighted with. Trust me when i say i will be pushing Mr Sinnott’s comments far and wide first thing Monday morning as well!

The rest of Europe are right to demand that Ireland alter its low tax regime. On the one hand the government and the governor of the central bank are arguing that Irelands fiscal problem is not directly caused by the bank bailout. On the other it is obvious from any comparative study that Irish public expenditure as a percentage of both GDP and GNP is closer to Slovakia than it is to other small open European economies such as the Netherlands or Denmark. Hence, it does not take a genius to figure out that the fiscal problem is a tax problem. We are a low tax economy that is simply not sustainable. We have relied upon a low corporate tax rate as a central tool of industrial policy (even if nobody likes calling it this) and it has not worked. It did not solve our long standing employment problem and it never will. So, if economists are unwilling to face up to this reality and accept that we need to increase corporate and income tax to tackle the public finance crisis then you can be damn sure the politicians will not. So, hats off to Sarkosy – he is right. It is simply incredible to accept an IMF-EFSF loan at ridiculous interest rates whilst a huge portion of taxable capital is left untouched.

@ JtO

“All those academics who have advocated increasing Corporation Tax”

Such as?

“The debate is now closed.”

Thanks for letting the rest of us know! Clearly if a corporation says it’s very important that they not pay more tax then it must be true.

How many here believe Eamonn Sinnott would go out & publicly say: “Yep, Ireland is fine, go ahead raise the CT we won’t leave”?

Verify his other claims that the other 13 reasons Intel had to locate in Ireland are gone, then maybe, we can close this debate.

Trust but verify. Don’t do it like before & when believing the banks claims that they were well run & well capitalised. Trust but verify.

@JTO

Seems the debate is not closed, after all!

Here’s a quote from an Italian interviewed in Frankfurt by Arthur Beesly in today’s Irish Times: ” You have to think whether you want to continue this kind of model which relies on volatile corporate taxation income. This kind of model can apply very sharp shocks to taxation for the Irish taxpayer.” (Lorenzo Bini-Smaghi, Board Member, European Central Bank).

Lorenzo thinks the bailout was rendered necessary by decisions made in Ireland, by Irish people, about the type of economic model we wanted. Then decisions NOT made early enough in Ireland by Irish people led to decisions being made elsewhere that very few decisions CAN now be made in Ireland by Irish people.

One of the few decisions that can still be made in Ireland by Irish people is that we need a new “industrial” model.

And if we don’t “action” that decision soon, maybe that will also be taken out of our hands!

@ Aidan

given that we get more from corporation tax as a % of GDP then most of the rest of the EU, its difficult to claim that corporation tax rates are the chief problem with the tax take.

@JtO:
“But, then what would he know in comparison with all those academics who have advocated increasing Corporation Tax, but who have never worked one day in business or commerce in their lives?”

“Business wants to pay less tax shock.” Well there’s a surprise.

I suppose if they wanted first-born infants we could supply them too.

bjg

@JTO

off topic: I am trying to find out how many house sales are going lately. Not in terms of price, but in terms of volume. Do you know anywhere I could find out?

Irelands CT rate will come under enormous pressure when a Wilberforce arises th point out the damage done to developing countries through tax abitrage.

The comparision with the Slave trade may seem like an crazy statement but not from a political economy perspective.

Past decisions (lowering CT) has led to our economic model becoming very depended on its continuation and it has also created powerfull forces to lobby for its continuation.

We could raise our CT rate but other countries would then benifit from our loss. Much the same arguments were made against the abolition of the slave trade.

Arise Wilberforce! (and give us a sustainable domestic industrial policy while your at it)

@ Bond..Eoin Bond

Fair play to anyone who can provide any employment, but let’s get a bit of perspective here.
The announced 800 construction jobs will last two years. They are not high-end manufacturing jobs. As far as manufacturing is concerned, it’s a highly automated facility which is planned.

‘ Intel is hiring 200 staff in advance of the expansion, while another 300 existing staff have been seconded to other plants around the world to upgrade their skills’

As I read it, that is 300 probable redundancies which will be avoided, with a net gain of 200. Maybe you should hold off the trumpets for the moment.

@ Paul Quigley

it solidifies Intel’s investment in this country for years further down the line, and 800 construction jobs for 2 years are pretty badly needed at the moment. Pretty sure its something which everyone should trumpet, albeit whilst not getting carried away. Every recovery starts with investments like this, hopefully this is the real deal and not another false dawn. But while you’re asking me to not get carried away, i’d ask you to see the serious positives that this investment says about the ability of this country to still attract high quality FDI, and not try to talk it down for the sake of it.

@Kevin O’Brien

I am trying to find out how many house sales are going lately. Not in terms of price, but in terms of volume. Do you know anywhere I could find out?

JTO again:

I don’t know of any reliable source of information for the number of new house sales that is published on a monthly or quarterly basis. There have been occasional reports in the property sections of the newspapers, in which estate agents have been stating that sales are up on last yeat, but all very vague and I have no idea if the reports are reliable.

The only ‘volume’ figures published regularly are those for new house starts and new house competions, which might have a correlation with sales. These are published by the CSO in the following link:

http://www.cso.ie/px/DoEHLG/Database/DoEHLG/Housing%20Statistics/Housing%20Statistics.asp

The house starts (or commencements, as they call it) appears to have bottomed out in autumn 2009 and then started to rise very slightly, but the last figure in the avove link was for April 2010, so no idea if it continued.

The house completions appears to have bottomed out in Q2 2010. The Q3 figure was higher than the Q2 figure, the first time that has occcurred since 2007, and the Oct-Nov figures are higher than the Q3 figure (although it is possible that the not-published-yet Dec figure will be affected by the snow then). Again, no idea if this is a blip or the turnaround.

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