Trump says Ireland didn’t raise taxes? Now that is fake news

No. You didn't imagine it. US president Donald Trump, talking to the Economist newspaper, said that Ireland had done a good job in getting through the crisis by not increasing taxes. Anyone who compares their pay packet now and before the crisis will know just how incorrect this is.

A string of tax changes after 2008 were introduced to help close a gaping hole in the public finances, starting gently in 2008 but revving up sharply when the USC was introduced in 2011 to replace the income and health levies. Tax bands and credits were also changed to get more people into the net, excise duties were hiked, the top rate of VAT was increased and a new residential property tax was introduced in 2013.

In total, €11.5 billion of annual tax increases were introduced in the 2008 to 2015 period, out of a total austerity programme of about €32 billion. So while taxes increased sharply, the bigger part of the austerity programme came through cuts in spending. The tax reductions announced in the 2016 and 2017 Budgets totalling a little over €1 billion, have only made a start in undoing the burden of the increases.

The president said that “you would have thought” that Ireland would have doubled or tripled taxes. “They never raised it a penny. And they got through it and they are thriving now. Ireland’s done an amazing job. A lot of companies have moved to Ireland and they like it.”

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Corporate taxes

So the president is either plain wrong, or he is referring purely to corporate taxes, an area where successive Irish governments have kept the main profits tax rate at 12.5 per cent, reckoning that this pays off via higher inward investment and that any increase would be counter-productive.

Given that Mr Trump made the tax comments in relation to his investments in Ireland, this may be what he meant. Various loopholes have been closed off, but the main rate has been held at 12.5 per cent and a strong flow of foreign direct investment (FDI) has continued.

This, of course, is the key policy issue in relation to Irish tax for the Trump administration. The president expressed confidence in the interview that his policies on tax and regulation would lead to more US companies investing at home. The planned corporate tax rate cut from 35 per cent to 15 per cent has still to be negotiated with the US Congress. In the meantime, the president emphasised that the cuts in regulation were just as important to business.

It seems that Ireland’s corporate tax rate - and its success in attracting FDI – is going to be a key factor in the US debate now getting under way, as the president tries to persuade Congress to accept his approach.