The EU just doesn’t get it.
European Union leaders couldn’t agree on much at their emergency summit in Brussels last week. But on one issue they were united: To get a better interest rate on its bailout loans from Europe, Ireland must first damage its economy and growth prospects by raising its 12.5% corporate income tax rate.
You might think that Berlin, Paris and Brussels—all lenders to Dublin—would want to maximize the chances that they’ll be paid back by encouraging helpful economic policies. But resentment on the Continent over Ireland’s 12.5% tax rate apparently trumps economic rationality. The European claim is that Ireland needs to raise its tax rate to raise more tax revenue.
So let’s review the facts. Between 2002 and 2007, Ireland’s corporate tax revenue averaged 3.6% of gross domestic product, compared to the OECD average of just under 3.5%. Even after some reductions in the past decade, Germany’s corporate tax rate today is roughly 30% (federal and regional combined) while France’s is about 33%. Yet Germany collected less than half as much tax revenue as the OECD average from 2002-2007—1.65% of GDP on average. France collected 2.3% of GDP on average in those years.
Even in 2009, amid recession and a contracting economy, Ireland managed to collect the equivalent of 2.4% of GDP in corporate income tax revenue, compared to 1.3% for Germany and 1.4% for France. This is a testament to the efficiency of Ireland’s low rate in encouraging investment, economic growth and tax payments. Instead of punishing Ireland for its enlightened tax policy, politicians on the Continent would be wiser to emulate it.
acording to Ambrose the actual rate of company tax in France is more like 8% after allowances and incentives are included. Ireland is simply more honest and open in its tax regime.
Either way it does not matter. Ireland (and Greece etc) is simply trading while insolvent. The sooner they repudiate the better. There is no way they can trade out.
At present only Sinn Fein has a policy of repudiation. It would be ironical indeed if the IRA were to be Ireland’s saviour.
rodney
14 Mar 11 at 9:39 pm
Ireland should do what Estonia has done and completely abolish corporate tax. In Estonia they merely have a withholding tax on dividend payments to ensure that shareholders pay their due.
TerjeP
15 Mar 11 at 9:45 am
Estonia was hit hard by the financial crisis but the chart at the link below shows that it is bouncing back with solid growth.
http://en.wikipedia.org/wiki/Economy_of_Estonia#The_economy_today
TerjeP
15 Mar 11 at 9:50 am