Historical Origins of Ireland’s Low Corporation Tax Regime

This post was written by Frank Barry

Readers might be interested in this analysis of the (bureaucratic and electoral) politics of the introduction of export profits tax relief in 1956, available here. The abstract is as follows:

T. K. Whitaker and Seán Lemass are generally credited with effecting the policy shift from protectionism to outward orientation. Ireland’s low corporation tax regime, however, has its origins in the export profits tax relief (EPTR) measures introduced by the second inter-party government in 1956. EPTR was introduced at the behest of the Department of Industry and Commerce in the face of long-standing opposition from Revenue and the Department of Finance. Industry and Commerce at the same time successfully thwarted the desires of the Taoiseach, the Department of Finance and other state agencies to have restrictions on foreign ownership of industry repealed. These apparently contradictory positions were rooted in the historical legacy of protectionism. The inter-party Taoiseach, John A. Costello, downplayed the connection between EPTR and foreign investment in an apparent attempt to deprive Fianna Fáil of an opportunity for controversy. Its introduction hastened the end of Fianna Fáil prevarication on the issue of foreign ownership.

The importance of the intense electoral competition of the period is also frequently ignored in accounts of the policy shift towards outward orientation. Following sixteen years of unbroken Fianna Fáil rule, the next four general elections brought four changes of government. Along with the depth of the 1950s recession, this forced Fianna Fáil into a comprehensive reexamination of its industrial strategy. The economic thinking of the major political parties co-evolved, and many of the institutional innovations of the period, including the Capital Investment Advisory Committee, the Industrial Development Authority, the early Córas Tráchtála, and, of course, EPTR, were the result of inter-party government initiatives.

The defeat inflicted on Finance by the Department of Industry and Commerce partly motivated Finance’s work on Economic Development, the 1958 publication of which was important in providing political cover for Fianna Fáil’s U-turn on overall economic strategy.

11 Responses to “Historical Origins of Ireland’s Low Corporation Tax Regime”

  1. Michael Hennigan - Finfacts Says:

    Frank,

    This is an interesting piece of work, as usual.

    I had thought that Sweetman having skipped a generation in appointing Whitaker as head of the DoF in 1955, that the latter then was instrumental in having the export profits relief provision included in the 1956 budget.

    The comment “I do not know why you assume that we have invented a new time machine,” was rather bitchy!!

  2. David Boyd Says:

    Very interesting work. The French would love to undo the policies that worked for so long.

  3. David O'Donnell Says:

    @Frank Barry

    Useful piece of Genealogy.

    Recent debate on ‘protecting’ Irish Corporation Tax Rates is a ‘Red Herring’ and a political distraction - allowing Politicos to Swan around in Brussels and return claiming a victory - for a battle which is a legal figment.

    Any moves to ‘force’ Corporation Tax rates by the Nicolas/Angela Tango would immediatly, and perfectly legally through extant treaties, be strenously VETOED by the UK, Denmark, Sweden et al and Ourselves.

    It is the equivalent of claiming that EU Mandarins are going to abolish the Irish Tuesday - and a gadarene rush by all politicos to Save the Irish Tuesday …. loads of distraction for the Irish citizenry and a waste of time and effort as the real Elephants of Deficit and Vichy Bank Debt are taken off the agenda …….. and after some time Politicos return from a trip to Europe on the back seats of RyanAir to claim a Massive Victory and parroting that the The Irish Tuesday has been protected into the future - and ‘aren’t we great men and women of destiny for doing our bit for the auld sod’ ……….

    Patricia the Irish Sovereign_in_Exile is not amused by this posturing - and has already sent her regrets to HRH that she is highly unlikely to be back in time for the historic visit due to the idiocy of past, present, and near future Irish Governance - in fact, she is preparing contingency plans for her grand-daughter [who has yet to be born], in the fulness of the Irish sense of time, to assume the mantle.

  4. David O'Donnell Says:

    note 67 on Costello a real surprise !!

    Might not have been a great golfer, and lucky that the two boyos on the bikes did not shoot him in his early years, but he showed an incredible amount of foresight on taxation/FDI …. where are you publishing this?

  5. Frank Barry Says:

    @ David,
    The paper will hopefully appear in the next issue of the Irish Economic and Social History journal.

  6. David O'Donnell Says:

    @Frank Barry

    Good stuff!

    On human capital, you might consider a genealogical analysis on Noel Browne’s claim in Against the Tide that he initiated the ideas that led to Donough O’Malley’s useful piece of ‘unilateral’ action - against the wishes of the Dept of Finance of the times ……..

  7. Frank Barry Says:

    @ David O’Donnell,

    I posted something a while ago on O’Malley’s unilateral action, available at:

    http://www.irisheconomy.ie/index.php/2009/10/06/donogh-omalleys-1966-announcement-of-free-education-the-hidden-history/

    TCD historian John Walsh has a recent book on education policy, The Politics of Expansion. I haven’t read it yet but Noel Browne is referenced a number of times. Garret FitzGerald mentioned at a history seminar last week that he had been told that O’Malley took the unilateral action because he had heard that FG was set to announce a similar initiative. O’Malley’s speech was in September 1966 and the FG document, of which GFG was the main author, was issued in November, so the timing is right.

  8. David O'Donnell Says:

    Ta. I’ll get around to it ….

  9. Dizzyskater Says:

    Could I ask a question. Could one of the many fine economists here tell me what effect say a 2.5% cut in our corporate tax rate would have a) initially in oyr tax take b) the medium term effects on our tax take say 5 years hense? What might the employment creation effects be? Could any of the politicos here calculate the potential effects such a move would have o Sarcozys blood pressure and is there a corrolation? No, seriously if 12.5% is good then surely is 10% not better?

  10. Frank Barry Says:

    @ Dizzyskater,
    Some might say that it depends on the shape of the Laffer curve…

    Stability of the corporation tax rate is also apparently important. This, allied with the Laffer curve argument, might warrant leaving it alone.

  11. Mickey Hickey Says:

    Couple of interesting blogs, competition from the East. Keep in mind that George Monbiot is a little left of centre.

    http://www.guardian.co.uk/commentisfree/2011/feb/07/tax-city-heist-of-century

    http://www.guardian.co.uk/business/ireland-business-blog-with-lisa-ocarroll/2011/feb/07/ireland-economics#start-of-comments

Leave a Reply