Having just raised the issue of monetary policy (the Euro), I shall also mention fiscal policy. When I first had a job in Ireland, one of the less satisfying elements was the high taxation to which we were all subjected. All elements of both direct and indirect tax were punitive, and Ireland was known as a high tax economy. For those who believe that raising tax levels is an easy answer to our national debt problems, it may be instructive to note that we were there once and it didn’t help.
Now in more recent times the picture has changed. Corporate tax is low, income tax is more in line with European norms and perhaps lower than in some countries, and highly unusually, a huge proportion of the population is outside the income tax net altogether; I know of no other country where the proportion of non-tax payers at lower income levels is so high. As we have already noted, there is no property tax, no local taxation, and there is no wealth tax (though Ireland experimented with that rather unsuccessfully in the 1970s). Indirect taxation, on the other hand, is high by international standards.
The low tax framework has been one of the major drivers in foreign direct investment. I know this for a fact, because I was involved in discussions around one or two of the most important investments over recent years, and Ireland’s tax régime was the deciding factor that prompted them to go for here rather than some other European country.
Having said that, Ireland’s tax net needs to be widened, as there are too many people either escaping liability altogether or manipulating expenses or exemptions to such as an extent as to undermine the national interest. But whatever it is that we do, Ireland needs to have fiscal policy levers to underpin economic and social policy. In this context, the constantly threatened attempt to impose an EU-wide harmonisation of taxation is a major risk to national interests. While Ireland’s EU Commissioner assures everyone that corporation tax harmonisation is not on the agenda, media reports suggest otherwise, and this will become one of the most important issues for government over the period ahead. If we don’t have tax advantages, we have very few others in competition with geographically more advantageously placed and bigger and wealthier countries. This is one benefit we must hold on to.
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