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CORPORATION TAX & THE BUDGET

Amid the acres of conjecture/analyses of our economic travails across every Sunday broadsheet, the question of our 12.5% corporate tax rate is close to centre stage.

Increasing it will have a negative impact on potential economic growth, meaning it will take even longer for Ireland to pay back its loans.  In other words, raising it would be counter-productive for all concerned, seems to be the thrust taken by the experts featured in most newspapers.

The Sunday Business Post quotes a leading UK-based economist, Marie Diron, who argues the debate so far has overlooked the fact that reducing the tax in Ireland would not necessarily benefit our European neighbours but could see multinationals relocating to lower-cost economies in Asia and China instead.

Diron, a former principal economist with the European Central Bank, said: “Ultimately, if it is counter-effective for Ireland, it is counter-effective for Europe.”

The Sunday Tribune cut down on its international phone bill by staying at home to find those willing to make essentially the same argument for retaining the current tax rate. Mark Redmond, chief executive of the Irish Tax Institute, told the newspaper any change would create uncertainty among multinationals which, in turn, could hamper investment.

“It is critical, if we are to get back on track and repay the debts we are taking on now, that the 12.5% rate remains in place. Any uncertainty in the rate could mean that we could lose out on big projects and those projects would go to countries outside of the EU.”

Nearer the proverbial coal-face, Pfizer’s Paul Duffy told The Irish Independent US multinationals may stop investing in Ireland or pull out completely, if the corporation tax rate is hiked as part of the bailout.

The country would be facing major credibility and trust issues if it performed a U-turn on the corporate tax rate, he said.

Behind that 12.5% figure lies a huge chunk of our economy. As Lionel Alexander, the president of the American Chamber of Commerce, points out in The Sunday Times: “Foreign Direct Investment accounts for €110 billion or over 70% of total exports, 240,000 jobs, 55% of corporation tax, €19 billion in direct expenditure and €7 billion in payroll.”

For the record, the same newspaper puts the total cost of the bailout at up to €120 billion and will mean additional taxes, including a property tax next year that would raise €500m between 2011 and 2014.

The tax is expected to be a flat-rate levy of €100 a house in the beginning but will become more ‘sophisticated’ after 2014 when the every property will be valued individually. When fully implemented, the charge could average up to €500 a year per household.

The phrase blood from a stone comes to mind though. The Sunday Tribune reports that the number of PAYE workers claiming reliefs has trebled in the past five years, meaning less tax for the exchequer. It seems the harder the squeeze, the more reliefs claimed.

However, claiming entitlements is likely to accelerate as the government still enjoys a huge windfall from unclaimed tax reliefs every year, mainly due to lack of awareness and fear of the Revenue Commissioners.

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