DÁIL SPEECH ON MAINTAINING 12.5% CORPORATION TAX RATE 23/11/2010

Corporation Tax Dáil Speech

“I commend Deputy Noonan and his colleagues on the Fine Gael Front Bench on introducing this timely motion. The biggest crisis the country faces relates to the fact that 450,000 people are unemployed. The taxation system, whether it be the part which relates to income tax or that which relates to corporation profits tax, is critical to whether people remain in employment, whether new employment is created, whether businesses expand or fold, whether new foreign direct investment is attracted to this country or goes to other EU or global locations or whether existing foreign direct investment relocates elsewhere. That is why it is important this debate is taking place”.

“It is also important that the House, in the context of the financial straitjacket in which the country finds itself which has led to others coming to our assistance, lays down a firm marker regarding what we believe to be the pillars of public policy that are sacrosanct. The corporation tax rate is one such pillar. It is regrettable, therefore, that the Government saw fit to muddy the waters by tabling an amendment to the motion. At a time when it is seeking cross-party co-operation, it is disappointing the Government has tabled the amendment. Those opposite should reflect on this between now and the vote tomorrow”.

“There are approximately 240,000 jobs in Ireland that were created and are maintained by foreign multinationals which established operations here. Foreign direct investment accounts for in the region of 70% of total exports, the value of which amounts to €110 billion. The companies involved provide 55% of the total of corporation profits tax paid. In addition, they pay approximately €7 billion in salaries to their staff and are responsible for direct investment in the economy of €19 billion. It is regrettable, therefore, that any uncertainty should hang over this sector at a time when the critical issue is jobs”.

“In 2008 the OECD carried out a survey and discovered that for every 1% rise in corporation profits tax, there is a corresponding likelihood of a 4% reduction in foreign direct investment. If one considers this in terms of the impact it could have on the economy, it is clear that 10,000 jobs and €5 billion worth of exports would be placed in jeopardy and €400 million in wages and €1 billion in direct investment elsewhere in the economy would be lost. In such circumstances, the stakes are enormously high. Given that 450,000 people, many of whom may have worked in the foreign direct investment sector or in indigenous companies for which corporation tax is critical, are unemployed, I am of the opinion that this is an opportune time to lay down a marker”.

“I agree with Deputy Noonan that the threat to our corporation tax regime may be more imaginary than real. If our partners, the IMF or the EU in its many guises, are interested in Irish economic recovery, they must recognise that the engine of such recovery must be job creation. Corporation tax is critical in this regard. Rather than the lowest, Ireland has only the third lowest rate of corporation tax in Europe. The average rate across the 27 member states of the EU is 22%. Ireland’s rate of corporation tax is 12.5% but there are two other member states with even lower rates. It is important to highlight that fact”.

“There have been a number of hostile soundings in recent times, especially from France and Austria, regarding the fact that the bailout package should be conditional on an amendment to our corporation tax regime . Such soundings do not necessarily come from critical players in the countries to which I refer but they certainly emanate from those on the fringe. Against that background, we must take account of comments such as those attributed to Mr. Lionel Alexander, managing director of Hewlett Packard, a company which provides approximately 4,000 jobs at various locations throughout Ireland, who stated today that if the corporation tax rate increased, his company would reconsider its investment in Ireland. That is a salutary reminder of the stakes for which we are playing”.

“There is another matter which we must consider in this regard. If we were to alter the corporation tax regime, what guarantees are there that companies which have located their operations here to avail of the 12.5% rate that applies would relocate those operations to other European countries? There are no guarantees in that regard. The other 26 member states of the EU should take note of that fact. If the companies to which I refer decided to locate to countries outside the EU, there could be significant outflows of capital from all 27 member states. The latter must be borne in mind, particularly in the context of the emerging economies in Asia. India, for example, is turning out more people with PhDs than any other country in the world. Singapore, China and Brazil in South America are all chasing foreign direct investment”.

“Our corporation tax regime is but one piece of a jigsaw of incentives which make Ireland an attractive location for foreign direct investment. Other such pieces include our educated workforce, recent legislation relating to holding companies, taxation on patent royalties, etc. and double taxation agreements. These incentives make locating operations here very attractive”.

“It is also important to take the indigenous sector into account. Any interference with the existing corporation tax rate could well be the difference between indigenous companies surviving or going under. These companies are driving onwards, exporting goods and services and are the real engine of our economy in the context of the number of people they employ. We should, therefore, make haste slowly. The House should send out a clear message in that context that our corporation profits tax regime is not open to negotiation”.

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