Our low tax rate will not be axed in exchange for a better deal, says Minister Donohoe
IRELAND’S corporation tax rate is safe and won’t be sacrificed in exchange for the EU agreeing to protect our interests in the Brexit negotiations, Public Expenditure Minister Paschal Donohoe has made clear.
And Ireland is capable of meeting the multiple challenges thrown up by ‘the single biggest political event outside our borders in nearly 40 years’, Michael Noonan’s financial partner declared.
Mr Donohoe said Britain had been an important ally in recent years in defending Ireland’s special 12.5% corporation tax rate, ‘but there are also other countries in the EU which recognise the importance of it to Ireland’.
‘The rationale hasn’t changed,’ he said. ‘We have this regime in place to offset other limitations our economy has, such as being an island on the periphery and not being joined and connected for trade on the wider continent.’
Ireland had also negotiated a specific protocol to be attached to the Treaty of Lisbon ‘in which we sought particular assurance about the corporation tax rate being a national competence, and that was granted and will continue to be the case’, Mr Donohoe said.
While it was conceivable that there could be pressure and it was a very important question, the focus was all about the overall negotiation, he said.
‘We will work to ensure that key elements of our economy continue to work and to be protected,’ Mr Donohoe said.
‘There will be multiple challenges that our country will have to deal with – the maintenance of the Common Travel Area, for instance, our trade with Britain, our relationship with the North of Ireland, and the position of Irish communities in the UK.’
Mr Donohoe also said that the Government’s public spending commitments – and planned USC reductions – were ring-fenced for the next two years because of the two-year British disengagement process. It is only thereafter that Ireland will face pressures on available resources, he said, while warning that the Government had never committed to the full restoration of public sector pay cuts in the immediate aftermath of the financial crash.
However, the State would completely honour those interim pay restoration measures that are set out in the Lansdowne Road Agreement, which expires in 2018, he made clear on the This Week programme on RTÉ Radio 1.
He said that the Government had got its finances under control to such a point that it only had to borrow €1.5billion this year and it was confident this would continue into 2017.
The Public Expenditure Minister added: ‘It becomes volatile after that point because for the next two years Britain remains in the European Union. There will be a period of time when they are negotiating their withdrawal and in the aftermath of that we can expect to see significant change.
‘This is the very reason that, in the Summer Economic Statement, we prioritise capital expenditure and have said that we would priorities things like housing, public transport and closing the gaps in schools and hospitals, and also because these are the things that create jobs and generate growth in the economy.’
Fears for a complete slowdown of planned tax reductions could also be misplaced, he suggested.
‘Many would argue that the very reason you need to put in place tax reductions or tax reform is that it’s a counter-cyclical in nature,’ he said. ‘We will be reviewing our plans for October. But because we have reduced our borrowing and public debt, it gives us a platform to build on.’
On public sector pay, Mr Donohoe said he had been consistent in relation to the Lansdowne Road Agreement, which was ‘the only game in town’. He explained: ‘It’s clear that this is the only arrangement we have on pay with the public sector unions. Moderate wage restoration is accounted for within our plan.
‘I say to all the stakeholders that it is the only show in town for managing the public wage needs for our economy.
‘We have never committed to full wage restoration. Lansdowne Road restores a portion of the pay that prevailed at pre-crisis times. In the period after 2018, we do expect the very changed circumstances to have an effect on the resources we have, and we have to take account of that.
‘That’s why we have increased public expenditure to enable the economy to grow and why we have made provision for a rainy day fund.’
In relation to the Budget, Mr Donohoe said he would be sitting down with Finance Minister Michael Noonan soon to study the opening position.
He said: ‘We will look at the competing demands that are there, but will have to asses them as to how we respond to this challenge, but it is one that we are well positioned to address, and we will.’
‘Wage restoration is in the plan’
PASCHAL Donohoe’s assurances about our corporation tax rate are welcome in these turbulent times. However, as Britain negotiates its exit from the EU, nothing much else can be assured about the country’s economic outlook.
It is likely, for instance, that Britain, left to its own devices and perhaps delivered a poor hand by an EU bureaucracy bent on revenge, could cut its own rates drastically and to such a level that even our controversially low rate would become less favourable to multinationals.
Our hope that Britain leaving the single market might encourage financial services to move here from London seems, unfortunately, to be fading – with Paris now mentioned as the preferred location.
It’s likely that the Germans, too, have plans to extract some advantages for their country from Britain’s isolation.
To benefit in any way from this new order in EU politics, our leaders will have to show flair and cunning – as well as a trove of contingency plans to cope with a broad range of potentially nightmarish economic scenarios.