Ireland's corporate tax rate not a factor in economic bust

During the Celtic Tiger years there were all sorts of articles in the press outside Ireland trying to explain why we were having such a boom. Some were better informed than others and just about everybody better than Tom Friedman, who declared that it was thanks to "free" college education and national health care. (Can we now blame college professors & doctors for the bust?!)

Given all the attention the Celtic Tiger received it's hardly a surprise that there are many who are now trying to explain what went wrong. Again, however, some are way off the mark. This week we had two prime examples.

Richard Murphy on the Guardian's web site and two economists, Peter Boone & Simon Johnson, on the New York Times' web site identified Ireland's low corporate tax rate as a primary cause of the burst-bubble economy we have now. They are wrong, wrong, WRONG.

Ireland's 12.5% corporate tax rate is one of the best things that the Irish government has done from an economic policy perspective. The low corporate rate is one of the (often the only) key incentives to attract footloose capital to Ireland, which is after all a fairly underpopulated, small island with difficult transport links to Europe's main population centers. The recent disruption to Irish commercial life caused by the volcanic ash made that pretty plain.

There is a lot of guff spoken about how foreign companies are attracted to Ireland's "well-educated population", but there is no way that any American (or other) company can objectively assess the Irish education system and compare it with any other EU nation's. The best we can hope for is that we believe our own propaganda so that we make a convincing case to those corporate heads who are looking for an EU base.

It is true that we have a younger population, which I'm sure helps bring in companies like Oracle, Microsoft, Google, Facebook and others. Still, I doubt that would be sufficient if not for the fact that those companies know, without a doubt, that their profits here will be taxed at 12.5%. The tax rate is so important that no major political party makes a case against it and it is often spoken of as being so crucial to Ireland's economic well-being that the Irish government would block any EU move to force a change (sort of a nuclear option).

I don't know what their motives might be, but these gentlemen would be better served investigating the effect of being part of an economically inappropriate (for Ireland) currency union or the failure of government regulators to control the banks than to deny the success and benefits of one of the government's few genuine successes. 12.5% is what it is and where it should stay.


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