Business Week: Corporation tax, property prices and airlines

There will have been alarm bells ringing in Government circles this week at the utterances of British chancellor of the exchequer George Osborne, who announced plans to cut the UK's corporation tax rate to 15 per cent.

That's too close to the Republic's 12.5 per cent for comfort, and PwC managing partner Feargal O'Rourke went as far as to say the UK had parked its tanks on the Republic's lawn.

The move is designed to mitigate the fallout from Britain’s exit from the EU and prevent a flight of investment and multinationals from London and the rest of the UK. Announcing the 15 per cent target, down from the current 20 per cent, he said Britain should “get on with it” to prove to investors the country was still “open for business”.

Aebhric McGibney, director of public affairs in the Dublin Chamber of Commerce, said the news was a wake-up call to the Government, which should now focus on “rolling out the green carpet” for corporations by bringing the Republic’s key business tax rates in line with the UK’s.

US multinationals are already pressing the Government to reduce the tax due on share options awarded to company executives. The American Chamber of Commerce Ireland said “senior leaders in our member companies are deeply concerned” about tax levels here.

Irish employers’ group Ibec was quick to say Osborne’s proposal reinforced the need to reform the Irish offering in the next budget to make the Republic more attractive for foreign investment.

Such talk is unlikely to go down well in international circles, with the Republic already under the magnifying glass in relation to its approach to corporation tax.

The European Commission is taking legal action against Ireland for giving "sweetheart" deals to companies such as Apple, while US presidential hopeful Hillary Clinton has criticised two companies for "moving abroad to Ireland to shirk US tax obligations".

Corporation tax, which surged to record levels last year, remained the largest contributor to the Exchequer, coming in 19 per cent or €505 million ahead of target at €2.67 billion for the six-month period to the end of June.

Minister for Finance Michael Noonan was playing it cool though. Osborne's announcement was "not as dramatic at it might appear", he said. Britain previously signalled a cut to 17 per cent by 2020, which he said was "not a million miles away" from the new rate.

There have already been murmurings in London. JP Morgan boss Jamie Dimon has warned the bank could move thousands of jobs out of the UK if the country loses the right to sell financial services to the EU.

“It will put more conditions on the UK and might force banks to become smaller in London,” he said. “The worst case is that we might have to relocate a few thousand people to other offices in the euro zone.”

The Bank of England has taken steps to ensure British banks keep lending and insurers do not dump corporate bonds. It said risks it had identified before the referendum were starting to materialise, including lower demand for commercial property.

The bank also said it was monitoring investors’ willingness to fund Britain’s large current account deficit, as well as the high levels of household debt and the subdued global economy.

The ramifications of the referendum result will be felt far and wide. Northern Ireland's Economy Minister Simon Hamilton said the result was a "reality which we need to deal with" and pledged to "protect and advance" the interests of the local economy.

Merrion Capital cut its forecasts for the Irish economy and company earnings. The Dublin-based firm lowered its Irish gross domestic product estimate for this year to 4.8 per cent from 5.3 per cent, with growth set to come in just below 4 per cent.

“The reduction in our GDP assumptions are mainly driven by lower net exports, with consumption likely to be negatively impacted, but to a lesser degree,” said the report.

One development that will help Irish exporters is improved access to the US beef market, paving the way for exports of manufacturing beef or mince, long regarded as the more lucrative end of the trade.

US authorities had agreed to recognise the Republic’s raw meat control system as equivalent to their own, which will allow Irish exporters to ship mince used in burgers and other products to the world’s largest beef market.

The Republic is also seeking ways it might benefit from Brexit. IDA Ireland chief executive Martin Shanahan met Central Bank governor Philip Lane to discuss the potential for an influx of investment from London. Shanahan said afterwards he was "confident" the Republic's regulatory system can cope if there is an influx.

The economy generally remains on a steady path. Tax receipts for the year are now €742 million ahead of target, according to the latest exchequer returns. The Government collected €22.5 billion in tax revenue, which was €1.9 billion up on the same period last year.

The unemployment rate remained at a post-crash low of 7.8 per cent in June, unchanged from May and down from 9.4 per cent in June 2015. Those better job prospects were cited as a driver of a rise in consumer sentiment last month.

The survey was conducted before the result of the UK’s referendum on EU membership, but its headline index rose to 103.4 in June from 98.1 in May, effectively reversing the weakness reported in the May survey.

Separate reports from property websites MyHome.ie and Daft.ie. found asking prices for houses outside Dublin rose sharply in the second quarter of 2016, with prices in the capital rising more modestly.

MyHome.ie, which is owned by The Irish Times Limited, said asking prices for newly listed properties rose by 5.2 per cent in the second quarter, driven by a recovery in prices outside Dublin. Newly listed properties in Dublin rose by 3.6 per cent.

Daft.ie’s report suggests house prices rose by an average of 6.3 per cent nationally in the year to June 2016. It said prices were effectively stable in the capital, rising by 1.1 per cent, while prices outside Dublin leaped 10.2 per cent.

In the world of aviation, a report on airport charges commissioned by the Department of Transport suggested the State introduce competition between the two terminals at Dublin Airport or build a new airport to compete with the existing one.

The report recommended changes to the system for regulating airport charges that is currently overseen by the Commission for Aviation Regulation (CAR). It also said Dublin Airport had "significant market power" and should continue to have its charging regime tightly regulated.

There was bad news for Ryanair and Aer Lingus. Fresh from the Brexit blow, the airlines face the risk of a €16 million tax bill after an adviser to the EU's top court said they should be liable to repay State aid linked to Ireland's now-suspended air travel tax.

If that wasn’t enough for Ryanair, investigators raided six of its German bases as part of an investigation into allegations of systematic evasion of income tax and social security payments involving pilots flying its planes.

At least 35 prosecutors and customs investigators quizzed pilots and other staff about their employment relationship with Ryanair. They seized computers, iPads, rosters and other documents. According to reports, at least two pilots’ homes were also searched.