Corporation tax move would be step too far

FROM an Irish standpoint, capitulation on the 12.5% corporation profit tax would set the prospects of the economy back a step too far.

Ever since the pressure started to have a higher rate imposed on Ireland, US multinationals made it clear this would not be well received by them.

Tom McCarthy head of the IMI, who has close links to the sector, said any move up from the 12.5% rate would set back the Irish economy and lead to an outflow of US firms from here.

McCarthy could not quantify what number of companies might leave or what the job losses would be.

He stressed it would send all the wrong signals to a sector that has demonstrated just how mobile it is and firms’ determination to go where they can deliver the best annual returns.

A hike up to 15%, which might be a possibility, would add about €650m to the tax take and in the current environment the moral argument that says hit the big boys is quite strong.

But there is the very pragmatic argument that hitting foreign investors in Ireland would make our current situation even more perilous and set the economy back even further.

Given the pressure we are under it would indeed seem suicidal to damage the future of the foreign direct Investment in Ireland.

The comments by the IMI boss followed an extensive survey by IMI and National Irish Bank into the multinational sector in Ireland.

Both McCarthy and NIB’s economist, Ronnie O’Toole, said it was clear from their discussions that the sector’s strong Irish presence is fundamentally linked to the 12.5% corporation tax regime.

Going back a bit, when the big boys were coming in here, they banged on about the Irish being well educated and English speaking etc, but don’t be fooled.

Ireland’s main attraction, perched as it is on the periphery of Europe, continues to be its highly attractive corporation profit tax.

That’s the clear message the IMI and NIB delivered from their recent survey of over 140 multinationals located here. The message was unambiguous. If corporation tax rises, many of them will seek greener pastures. Not all at once obviously, but we have had clear examples of firms quitting such as Dell in Limerick because it was no longer cost competitive as a manufacturing base.

McCarthy said foreign investment in Ireland has been linked with our low corporate tax rate for decades. It is part of the deal, he said.

Two former taoisigh, Garrett FitzGerald and John Bruton, have also come out against any change.

Dr FitzGerald said it was unthinkable that the IMF would impose such a harsh measure on the economy when its objective in coming in here is to get the economy and the national finances back on solid ground.

Attacking the tax would be counter productive and John Bruton went further pointing out that our low corporate tax regime was initiated as far back as 1956 even before the EU was founded.

The scare around losing the low rate is a fresh reminder that we are heavily dependent on foreign companies. Some have argued that our reliance on foreign direct investment was over done, that we needed a strategy beyond a craven reliance on US multinational firms.

Some economists have identified that weakness and point to the significant potential still offered by the food sector.

Interesting also were the comments recently by Craig Barrett, the former global head of Intel, who said the Irish should look to their own skills and ingenuity to start delivering winning companies in various sectors that can compete globally.

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Wednesday, October 27, 2021

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