A Wall Street Journal editorial has attacked the European Union for trying to force Ireland to change its corporate tax structure, warning that such a shift will hinder any future economic growth in Ireland.
In an article entitled ‘Europe tries to beat the Republic into tax submission,’ the Journal points out that Ireland’s economic growth, at least in the beginning, was not ‘an economic mirage.’ Before the disastrous housing bubble, Ireland’s GDP grew as a result of attracting multinational corporations to set up factories and headquarters in the country. This provided jobs in the country and, as a result, “Ireland’s brightest young people no longer felt they had to flee to America.”
The European Union in recent days has been hinting that if Ireland wants an EU bail-out, it will have to change its corporate tax structure. “It’s a fact of life that after what has happened, Irleand will not continue as a low-tax country but rather it will become a normal tax country in the European context,” according to EU Commission Ollie Rehn.
Last week, a group of German MEPs told Jean-Claude Trichet, the president of the EU bank, that Ireland’s corporate tax rate would have nearly double for Ireland to get any EU assistance.
Werner Langen of the EPP said that Ireland was guilty of “massive competitive distortion on corporation tax,” while Markus Ferber, also of the EPP, and Sven Giegold, of the Green group, said that if Ireland’s economy continued to decline then it would be necessary “for the Irish Government to make concessions in tax policy in return.”
The Journal, however, praised Ireland for “standing firm, with a spokesman for the finance ministry affirming on Friday that its 12.5% corporate tax rate remains ‘a cornerstone’ of Irish fiscal policy.”
The editorial points out that Ireland’s “progress has been real and dramatic” under the lower corporate tax rate and that this progress “remains a long way from being undone by the events of the past two years.”
“Recovery will take time given the depth of the damage to Ireland’s financial system,” it continues. “But it will not be helped by a return to the habits of the 1970s and 1980s, when taxes frequently sucked up close to half of Ireland’s output and the economy stagnated. Tax hikes, especially on capital and investment, might please the mandarins in Brussels who loath competition. But they risk sending the Irish economy into long-term decline.”