Ireland fights for its tax rate

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Irish Finance minister Brian Cowen is reported to have told Irish employers:

that is committed to maintaining Ireland's 12.5pc corporation tax - a key component in the nation's inward investment success - in the face of EU efforts to introduce tax harmonisation or a minimum rate of corporation tax.

But the story is itself laden with misinformation. As Sheila Killian has noted, this is for a start a rearguard action:

Inevitably, Ireland is becoming the victim of its own success. Prosperity has brought high wages, impossible property prices and inflation. This has become an expensive place in which to live and do business. Basic products can be manufactured more cheaply elsewhere, and basic manufacturing jobs are beginning to move to Eastern European and developing countries. The low rate strategy was simple, effective, and inherently unsustainable. Tax competition produced a "race to the bottom" in terms of tax rates, and average rates tumbled across the EU. Ireland's tax rate is still among the lowest at 12.5 per cent, but Poland's 19 per cent may be more attractive to a company that can make more profit there.

And the Irish Tribune has reported large companies, like Dell, are already closing activities in Ireland.

The simple fact is that capital tends to locate where the best returns are and tax competition can at best only put a temporary blip in this process in favour of one location over another before rates must be lowered again.

What Brian Cowen is really saying is that Ireland is now stuck between a rock and a hard place. He might have been better off raising rather more in tax, investing in the infrastructure of Ireland which is falling apart and in training the local Irish population with the skills they need rather than relying on the diaspora returning home, because like me, they might be Irish, but are willing to wear the badge elsewhere. And they will go back from whence they came as soon as the prosperity goes, as it surely will when Ireland's only trick of low tax rates ceases to be a trump.