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Ireland Hammered to Raise Corporate Tax

German Finance Minister Wolfgang Schaeuble  and EU economic affairs chief Olli Rehn urged Ireland Tuesday to be realistic and drop opposition to raising a corporate tax rate critics say is unfairly low. "If Ireland wants something additional from us, then we can raise that issue," said Schaeuble of Dublin's demand for the interest rate on its EU and IMF bailout to be reduced, in line with the easier terms granted to Greece last Friday. The German minister was recalling a clash between Irish Prime Minister Enda Kenny and French President Nicolas Sarkozy on the issue at last week's eurozone summit that is sure to be revisited at a full European Union summit next week. – AgencyFrancePress

Dominant Social Theme: These kind of tax breaks must cease. They are radical, insubordinate and impractical.Wolfgang-Schaeuble

Free-Market Analysis: "This can't stay like this," says German Finance Minister Wolfgang Schaeuble, speaking of Ireland's fairly low 12.5-percent corporate rate. According to Agency France Press (see article excerpt above) Schaeuble claimed that US Treasury Secretary Timothy Geithner had also brought up the issue recently, worrying that too many American companies were choosing to base themselves in Ireland for tax reasons.

"Solidarity is not a one-way-road," Schaeuble is quoted as saying. And EU Economic Affairs head Olli Rehn agreed, reportedly urging new Irish leader Enda Kenny to support an upcoming EU strategy to set up a unified business taxation regime throughout the EU. EU's taxation commissioner Algirdas Semeta is about go public with the new EU-wide tax proposals.

The linkage between Ireland's supposedly low tax rate and its 67.5-billion-euro international bailout is not explicit. But at last week's EU summit, Ireland's request for a 100-basis point haircut on its loan package was rejected even though Greece received a reduction. Press reports made it clear that EU leaders wanted to see flexibility on the issue from Ireland. Rehn is quoted as acknowledging "some relation" between the corporate tax rate and the EU's rejection of Ireland's request for slightly better terms.

For Rehn, tax coordination, as he calls it, is increasingly important to EU strategy and policy. He believes proposals for a Common Consolidated Corporate Tax Base are both "reasonable" and gradual. "I would only encourage a constructive approach by Ireland on policies related to taxation, especially the commission's proposals on CCCTB."

The plan has been gestating for nearly a decade now and is intended to provide multinationals with a single, coordinated tax rate rather than a series of idiosyncratic national systems. For Ireland, the coordinated tax coming on top of its current sovereign debt crisis will provide a kind of deliberate death-blow. One wonders what the top Eurocrats are thinking. Ireland is not going to be able to pay for the debts its banks have accrued anyway; a higher tax rate will eviscerate its international software and pharmaceutical industries. Companies arrived as a result of the low tax burden; they will depart if it is raised.

None of this matters to Brussels. The claim is that the average corporate tax rate in the Eurozone is 25.7 percent or double that of Ireland. France's rate, alone, is 34.4 percent; though critics point out these rates are wildly inflated as a result of "give backs" and that France's all-in corporate tax rate for the larger multinationals actually ends up near eight percent – lower than Ireland's.

Again, none of this matters in Brussels. The Irish tax rate seems to pose some kind of personal affront. It comes up again and again; and now it has been brought front and center due to the EU's rejection of slightly better terms for the Irish bailout unless Ireland surrenders. One wonders what the Irish must think now of their "yes" vote – the second time round – agreeing to the Lisbon Treaty that provided the EU with expanded powers. It is those powers, now, that are being wielded to force Ireland into line with the rest of the EU.

The pressure that Ireland is under is giving rise to all sorts of editorial pathologies. Recently, the Irish Independent proposed in an editorial that Ireland rejoin the British Commonwealth. The suggestion was made within the context of an upcoming visit of Queen Elizabeth to Ireland. The Independent reckons she will be received enthusiastically and proposes that a substantive portion of the Irish population now regrets they ever left.

"I'd stake a decent wager," writes the editorialist, "that a correctly formulated question on returning to the British economic fraternity, Commonwealth and parliament would elicit a positive response. Supposing, in my fantasy, Britain agreed to underwrite Ireland's crippling debt in return for assuming sovereign power and changing the colour of the postboxes back to red, what would the response be? Positive, is my hunch."

This is an astonishing turn of events, given the bloody decades that finally resulted in Ireland's freedom. But perhaps it has much to do with Irish politics as it does with Irish post-partum regrets. The New Statesman recently carried an article blasting Fine Gael's Enda Kenny who just took over as Taoiseach in time to be rebuffed at the recent EU summit. What does the New Statesman think of Kenny?

[He] is a decent enough skin, a man you could have no serious objection to if he was about to take the reins of your local under-14 hurling team. However, by some strange trick of fate, he is the leader of Fine Gael, the party that has been the principal rival of Haughey and Ahern's Fianna Fail party since Ireland's hobbled independence in 1922. He was only ever meant to be a stop gap, but somehow he has hung on because the real heavyweights in the party can't agree among themselves who should be leader.

And what does the New Statesman think of Fine Gael and Irish politics in general?

Beyond the spelling of their names, there are all sorts of subtle differences between the Fine Gael and Fianna Fail that foreigners, particularly English people, could never hope to understand. But suffice to say Fine Gael is not as good at corruption and clientelism as Fianna Fail, and so it has not been elected as often or for as long as Fianna Fail. When it has, this has usually only been with the help of Labour, a party that exists solely to frustrate and demoralise all those deluded, overeducated individuals who think all this must change. Then of course there's Sinn Fein, which is a kind of cross between Fianna Fail and the Catholic Church, but with extra guns, paedophiles and front businesses. That's all you really need to know about Irish politics.

Ireland is being pushed to very brink by Brussels. Without a lower corporate tax it will lose the industrial base it painfully amassed over the past several decades. It has already lost its banking system to incompetence and EU cronyism, and thanks to austerity, its citizens will be in hock for decades to come. The political system and the changing of the guard from Fianna Fail to Fine Gael is not going to do much good.

After he was elected, Kenny's very first statement was that he'd been on the phone to unnamed EU leaders to inform them that Ireland needed a rate reduction. Only a week or so later, he received his answer ... nothing. Kenny also stated publicly that the one non-negotiable item was Ireland's tax rate. How did the EU respond? It was the single item on the EU agenda during last weekend's get together.

There seems no doubt that Ireland is being pushed deliberately. The Irish people were harried into voting twice on the Lisbon Treaty giving the EU more powers and now the Irish are literally being shoved a meter at a time toward an economic precipice. Either the Eurocrats in their arrogance believe the Irish – beleaguered and increasingly impoverished – will never push back or they are in some sense courting Irish civil unrest.

Why the EU would want to see an Irish civil explosion is a puzzle. But as we pointed out yesterday, if the EU keeps on its current course, there will likely be significant outbreaks of violence, not just in Ireland we imagine but in Portugal and elsewhere as well. Violent protests have steadily escalated in Greece, which like Ireland has come under increasing pressure of late. The EU's insistence that Greek privatization and divestiture go from five-billion euros to 50 billion has not sat well with PASOK – Greek's ruling socialist party which has thus far rammed through every austerity item that the Eurocrats have requested. It never seems to be enough.

Conclusion: As noted yesterday, Germany is now firmly in charge of the EU's austerity process and much of what the "Iron Chancellor" Angela Merkel is demanding is likely intended to palliate her own critics at home. She is, in fact, under extraordinary pressure to ensure that German euros do not flow out to pay for the "mistakes" of EU's profligate Southern PIGS. Perhaps this is the simplest explanation: that the EU is now being driven by Merkel's domestic agenda. It may be a serious miscalculation.

Source: The Daily Bell

© Copyright 2008 - 2011 All Rights Reserved. The Daily Bell is an informative compendium of independent economic views and analysis, which is published by The Foundation for the Advancement of Free-Market Thinking (FAFMT).

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