Irish concerned about tax and treaties

The ini­tial sta­bil­i­sa­tion achieved by the finance pack­age agreed for Greece was broad­ly wel­comed in Ire­land. Con­ta­gion effects from the Greek debt cri­sis had begun to erode the gains made by the Irish gov­ern­ment in reduc­ing its cost of bor­row­ing through aus­ter­i­ty mea­sures so steps to ame­lio­rate the sit­u­a­tion were viewed pos­i­tive­ly. The Taoiseach (Prime Min­is­ter) said he had “no hes­i­ta­tion” in sign­ing up to the agree­ment.11Irish Times: Cowen says he had no hes­i­ta­tion in sign­ing up to pact, 27 March 2010, avail­able at: http://www.irishtimes.com/newspaper/world/2010/0327/1224267175393.html (last access: 18 May 2010).

Owing to the sharp dete­ri­o­ra­tion in its pub­lic finances since the onset of the finan­cial cri­sis, Ire­land remains on the tar­get list of what has been described as a spec­u­la­tors’ “wolf­pack” that is cur­rent­ly cir­cling the Euro­zone herd. Ire­land needs to bor­row around 20 bil­lion Euros annu­al­ly to plug the gap in its finances. Hap­pi­ly, it suc­ceed­ed in rais­ing about 60 per­cent of its 2010 require­ment before costs esca­lat­ed in tan­dem with the Greek cri­sis, but any fur­ther pre­var­i­ca­tion could have proven dis­as­trous for the Irish exche­quer. In that con­text, expres­sions of Euro­pean sol­i­dar­i­ty in the face of threat were grate­ful­ly received.

More recent­ly, the Min­is­ter for Finance, Bri­an Leni­han, wel­comed the announce­ment of the larg­er Euro­zone sta­bil­i­sa­tion pack­age on 9 May 2010, say­ing: “Mem­ber states are show­ing their resolve to sup­port the over­all Euro­pean econ­o­my and the inter­ests of all Euro­pean cit­i­zens.”22Report­ed by RTE News: Emer­gency EU funds won’t solve long term prob­lems, 10 May 2010, avail­able at: http://www.rte.ie/news/2010/0510/euro_bailout.html (last access: 10 May 2010). The Taoiseach mean­while acknowl­edged that the Greek cri­sis and the Euro­zone agree­ment means that eco­nom­ic gov­er­nance will have to be pur­sued much more active­ly in the future.

Look­ing beyond the imme­di­ate pub­lic debt cri­sis of 2010, mis­giv­ings over the Eurozone’s Sta­bil­i­ty and Growth Pact are to be found in Ire­land as else­where. In an effort to slash the deficit, main­tain a cred­i­ble sov­er­eign risk pro­file and renew com­mit­ment to the pact, harsh aus­ter­i­ty mea­sures have been tak­en by the gov­ern­ment, result­ing in a fis­cal con­sol­i­da­tion equiv­a­lent to 6 per­cent of the Gross Domes­tic Prod­uct since 2008. But Ire­land still has a lot of cuts to imple­ment if it is to get a deficit cur­rent­ly run­ning at more than 14 per­cent down to the EU tar­get of 3 per­cent by 2014. There is real con­cern that tak­ing this much mon­ey out of the econ­o­my dur­ing a frag­ile recov­ery could have detri­men­tal con­se­quences. How­ev­er, this con­cern is accom­pa­nied by the knowl­edge that even if the Com­mis­sion decides to be lenient with Ire­land on the deficit issue, the inter­na­tion­al bond mar­kets will not. For exam­ple, for­mer Irish Euro­pean Com­mis­sion­er Peter Suther­land argues that, regard­less of the terms of the pact, fur­ther cuts are like­ly to be nec­es­sary on the basis of mar­ket con­fi­dence.33Irish Times: Har­ry McGee: Min­is­ters dis­miss pos­si­bil­i­ty of ear­ly bud­get due to Greek fis­cal cri­sis, 10 May 2010, avail­able at: http://www.irishtimes.com/newspaper/ireland/2010/0510/1224270049741.html (last access: 10 May 2010).

With­in Ire­land, there is plen­ty of oppo­si­tion to spe­cif­ic gov­ern­ment mea­sures, but a gen­er­al sense pre­vails that severe belt-tight­en­ing is nec­es­sary if Ire­land is to sta­bilise its econ­o­my and enjoy a recov­ery. The strongest oppo­si­tion to the over­all strat­e­gy in the Euro­pean con­text has come from trade unions, some mem­bers of which have ques­tioned why the gov­ern­ment could not post­pone the fis­cal con­sol­i­da­tion until the econ­o­my is in bet­ter health. The Greek cri­sis pro­vides one answer to that question.

There is anoth­er impor­tant angle to the debt cri­sis from an Irish per­spec­tive, and that is the ques­tion of the Euro exchange rate. Last year, the Finance Min­is­ter, Bri­an Leni­han, accused the UK of a com­pet­i­tive deval­u­a­tion of Ster­ling against the Euro, assert­ing that this was caus­ing “immense dif­fi­cul­ties” for Ire­land.44Bren­dan Keenan: Leni­han attacks UK over slide in ster­ling, Irish Inde­pen­dent, 10 Jan­u­ary 2010, avail­able at: http://www.independent.ie/national-news/lenihan-attacks-uk-over-slide-in-sterling-1597840.html (last access: 18 May 2010). In a let­ter to the Finan­cial Times, Manus O’Riordan, Chief Econ­o­mist of the Ser­vices, Indus­tri­al, Pro­fes­sion­al and Tech­ni­cal Union (SIPTU), not­ed that in the 24 months up to Octo­ber 2009, ster­ling had deval­ued by 25 per­cent against the Euro. “If any oth­er mem­ber state,” he argued, “had sought to address its eco­nom­ic prob­lems by slap­ping a de fac­to 25 per­cent tar­iff on imports from the rest of the EU, it would have been denounced as a rogue state.”55Accessed on the SIPTU web­site at: http://www.siptu.ie/PressRoom/TheEconomy/Name,11176,en.html (last access: 18 May 2010). In the con­text of these dif­fi­cul­ties, John Whe­lan, of the Irish Exporters’ Asso­ci­a­tion, says that Irish exporters would be “qui­et­ly hap­py” with the Euro’s recent sharp slide against the Dol­lar and Ster­ling. Ire­land had 42.6 bil­lion Euros worth of exports to the USA last year, and the shift in the exchange rate could be worth 6 bil­lion Euros to the Irish econ­o­my.66Irish Times: Falling euro set to boost exports and growth, 18 May 2010, avail­able at: http://www.irishtimes.com/newspaper/finance/2010/0518/1224270601272.html (last access: 18 May 2010). Fears of a Ster­ling sell-off linked to an uncer­tain gen­er­al elec­tion out­come did not mate­ri­alise, pro­vid­ing anoth­er boon for Irish exports.

The idea of a strong coor­di­na­tion of eco­nom­ic poli­cies in Europe is received ambiva­lent­ly in Ire­land. Despite the Taoiseach’s acknowl­edge­ment that bet­ter eco­nom­ic gov­er­nance is nec­es­sary, Ire­land will be reluc­tant to coop­er­ate in any mea­sures that com­pro­mise its bud­getary and fis­cal sov­er­eign­ty at a time of great fragili­ty. A key issue here is sov­er­eign­ty over tax issues. Ireland’s low cor­po­rate tax rate is seen as both a key dri­ver of its recent eco­nom­ic growth and a nec­es­sary con­di­tion of its future eco­nom­ic recov­ery. Reten­tion of una­nim­i­ty in vot­ing on tax­a­tion pol­i­cy mat­ters was an Irish pri­or­i­ty dur­ing nego­ti­a­tions on the Lis­bon Treaty. That aim was ful­ly achieved, and was reit­er­at­ed in the guar­an­tees secured by the Irish gov­ern­ment ahead of the sec­ond ref­er­en­dum on 2 Octo­ber 2009.77See for exam­ple: Insti­tute of Inter­na­tion­al and Euro­pean Affairs: Lis­bon: The Irish Guar­an­tees Explained, avail­able at: http://www.iiea.com/publications/lisbon-the-irish-guarantees-explained (last access: 18 May 2010). Any attempt to revive dis­cus­sions on a com­mon con­sol­i­dat­ed cor­po­rate tax base is like­ly to be strong­ly resist­ed. The oppo­si­tion Fine Gael par­ty, tra­di­tion­al­ly a pro-Euro­pean par­ty, sur­prised many domes­tic com­men­ta­tors by com­ing out strong­ly against the recent Com­mis­sion pro­pos­als on eco­nom­ic gov­er­nance, say­ing they rep­re­sent­ed an ero­sion of nation­al sov­er­eign­ty and alleg­ing that they had the poten­tial to deny Ire­land con­trol over its cor­po­rate tax rate.

In response to this, and sim­i­lar state­ments by the nation­al­ist oppo­si­tion par­ty Sinn Féin,88Irish Times: Euro­pean Com­mis­sion bud­get pro­pos­als deeply unde­mo­c­ra­t­ic, 17 May 2010, avail­able at: http://www.irishtimes.com/newspaper/opinion/2010/0517/1224270548498.html (last access: 18 May 2010). Andrea Pap­pin, Exec­u­tive Direc­tor of Euro­pean Move­ment Ire­land, called for an informed and adult debate on the issue, say­ing that it “is impor­tant to clar­i­fy […] that only an Irish gov­ern­ment can change our cor­po­rate tax rate, no one else.”99Irish Times: Euro­pean role in Irish bud­get, 18 May 2010, avail­able at: http://www.irishtimes.com/newspaper/letters/2010/0518/1224270596195.html (last access: 18 May 2010). Pap­pin and the gov­ern­ment are right to say that there is noth­ing in the Commission’s pro­pos­als about tax har­mon­i­sa­tion or a com­mon con­sol­i­dat­ed cor­po­rate tax base, but, as they stand, these pro­pos­als do mean that if the Com­mis­sion and EU finance min­is­ters do not like Ireland’s bud­get, and the state has already cut expen­di­ture to the quick, then the gov­ern­ment would be forced to raise taxes.

From an Irish per­spec­tive, anoth­er key issue in any dis­cus­sion about greater eco­nom­ic gov­er­nance in the EU or in the Euro­zone is: will it neces­si­tate treaty change? Any pro­pos­al that does will meet with great con­cern in Ire­land as there is lit­tle appetite from any quar­ter for fur­ther ref­er­en­dum cam­paigns (Ire­land is oblig­ed by a Supreme Court rul­ing to hold a ref­er­en­dum on any inter­na­tion­al agree­ment that impinges on the state’s con­sti­tu­tion­al sov­er­eign­ty). If the EU can con­tin­ue to find ways, such as the sta­bil­i­sa­tion fund, which deep­en Euro­pean eco­nom­ic cohe­sion with­out resort to new treaties, then Ire­land will prob­a­bly go along with them.

On the Lis­bon Strat­e­gy and its suc­ces­sor, the Europe 2020 Strat­e­gy, the Fine Gael par­ty not­ed that “[n]ot one of the Lis­bon growth strat­e­gy objec­tives set by the EU has been met. Accel­er­at­ed fis­cal con­sol­i­da­tion and a fund to act as a safe­ty net are undoubt­ed­ly a sig­nif­i­cant step for­ward, but what is miss­ing is a Euro­pean growth strat­e­gy that can make an export-led recov­ery cred­i­ble in high­ly indebt­ed coun­tries.”1010Fine Gael Pol­i­cy Sum­ma­ry, avail­able at: http://www.finegael.org/polcol/a/32/article (last access: 18 May 2010). The gov­ern­ment is sup­port­ive of the Europe 2020 Strat­e­gy, though it would like to see the agri­cul­ture and food sec­tors giv­en more of an empha­sis in the EU’s com­mon eco­nom­ic pol­i­cy.1111Irish Times: Cowen says he had no hes­i­ta­tion in sign­ing up to pact, 27 Match 2010, avail­able at: http://www.irishtimes.com/newspaper/world/2010/0327/1224267175393.html (last access: 18 May 2010). Nei­ther one is includ­ed in EU 2020’s five pri­or­i­ty areas but both are cen­tral to Ireland’s own eco­nom­ic plans. How­ev­er, the empha­sis on research and inno­va­tion in the Strat­e­gy chimes well with Ireland’s own ambi­tions. The appoint­ment of an Irish woman, Maire Geoghe­gan Quinn, as Com­mis­sion­er for Research and Inno­va­tion was there­fore viewed pos­i­tive­ly in Ireland.

    Footnotes

  • 1Irish Times: Cowen says he had no hes­i­ta­tion in sign­ing up to pact, 27 March 2010, avail­able at: http://www.irishtimes.com/newspaper/world/2010/0327/1224267175393.html (last access: 18 May 2010).
  • 2Report­ed by RTE News: Emer­gency EU funds won’t solve long term prob­lems, 10 May 2010, avail­able at: http://www.rte.ie/news/2010/0510/euro_bailout.html (last access: 10 May 2010).
  • 3Irish Times: Har­ry McGee: Min­is­ters dis­miss pos­si­bil­i­ty of ear­ly bud­get due to Greek fis­cal cri­sis, 10 May 2010, avail­able at: http://www.irishtimes.com/newspaper/ireland/2010/0510/1224270049741.html (last access: 10 May 2010).
  • 4Bren­dan Keenan: Leni­han attacks UK over slide in ster­ling, Irish Inde­pen­dent, 10 Jan­u­ary 2010, avail­able at: http://www.independent.ie/national-news/lenihan-attacks-uk-over-slide-in-sterling-1597840.html (last access: 18 May 2010).
  • 5Accessed on the SIPTU web­site at: http://www.siptu.ie/PressRoom/TheEconomy/Name,11176,en.html (last access: 18 May 2010).
  • 6Irish Times: Falling euro set to boost exports and growth, 18 May 2010, avail­able at: http://www.irishtimes.com/newspaper/finance/2010/0518/1224270601272.html (last access: 18 May 2010).
  • 7See for exam­ple: Insti­tute of Inter­na­tion­al and Euro­pean Affairs: Lis­bon: The Irish Guar­an­tees Explained, avail­able at: http://www.iiea.com/publications/lisbon-the-irish-guarantees-explained (last access: 18 May 2010).
  • 8Irish Times: Euro­pean Com­mis­sion bud­get pro­pos­als deeply unde­mo­c­ra­t­ic, 17 May 2010, avail­able at: http://www.irishtimes.com/newspaper/opinion/2010/0517/1224270548498.html (last access: 18 May 2010).
  • 9Irish Times: Euro­pean role in Irish bud­get, 18 May 2010, avail­able at: http://www.irishtimes.com/newspaper/letters/2010/0518/1224270596195.html (last access: 18 May 2010).
  • 10Fine Gael Pol­i­cy Sum­ma­ry, avail­able at: http://www.finegael.org/polcol/a/32/article (last access: 18 May 2010).
  • 11Irish Times: Cowen says he had no hes­i­ta­tion in sign­ing up to pact, 27 Match 2010, avail­able at: http://www.irishtimes.com/newspaper/world/2010/0327/1224267175393.html (last access: 18 May 2010).

The reports focus on a report­ing peri­od from Decem­ber 2009 until May 2010. This sur­vey was con­duct­ed on the basis of a ques­tion­naire that has been elab­o­rat­ed in March and April 2010. Most of the 31 reports were deliv­ered in May 2010.

The EU-27 Watch No. 9 receives sig­nif­i­cant fund­ing from the Otto Wolff-Foun­da­tion, Cologne, in the frame­work of the ‘Dia­log Europa der Otto Wolff-Stiftung’, and finan­cial sup­port from the Euro­pean Com­mis­sion. The Euro­pean Com­mis­sion is not respon­si­ble for any use that may be made of the infor­ma­tion con­tained therein.