Noonan firm on corporation tax

 

Minister for Finance Michael Noonan said today there is "no way" Ireland will increase its corporate tax rate.

Mr Noonan, who was in Brussels to attend a meeting of European finance ministers, also said it was "not reasonable" to try to set new terms for Ireland's bailout before the results of bank stress tests are known.

Mr Noonan is concerned that bank stress tests later this month may reveal a requirement for additional capital, making it impossible for Ireland to borrow again in the bond markets if the entire bill for the banks was met by the State.

He was speaking after meetings in Brussels with European Central Bank president Jean-Claude Trichet, EU economic and monetary affairs commissioner Olli Rehn and Jean-Claude Juncker, who leads the group of euro area finance ministers.

His remarks suggested EU governments may have to delay any changes to the terms of their aid package to Ireland until after a March 24th summit intended to enshrine a permanent bailout system for euro zone countries into the union's rules. Stress tests for the banks are due by the end of the month.

Speaking ahead of the meetings, Mr Noonan said the Central Bank in Dublin believes that Irish banks will need more than the €10 billion initially earmarked to recapitalise them. He said the bank's governor Patrick Honohan also believes it will exceed that figure. “But he's not prepared to estimate yet by how much,” the Minister said.

However, Mr Rehn said he disagreed with the Irish Government's assessment that more than €10 billion may be needed to bolster the banks. "I don't share" that view, Mr Rehn told journalists in Brussels.

"The banks' stabilisation fund is covered by the Irish themselves through the pension system and cash reserves,” he said.

The talks come days after a dispute over corporate tax led euro zone leaders to refuse an interest rate cut on Irish bailout loans.

At a summit in Brussels last Friday, Taoiseach Enda Kenny  made the case for substantial reduction in the interest rate. He refused to raise Ireland’s 12.5 per cent company tax rate in return for a 1 per cent cut in the rate.

French president Nicolas Sarkozy exchanged sharp words with Mr Kenny at the meeting. Diplomats also said that German chancellor Angela Merkel expressed scepticism about the Taoiseach's request.

Mr Sarkozy said after the summit that he understood corporate tax was “a very touchy subject” for Ireland, but said euro countries must move towards convergence. “No one is asking Ireland to have an average rate which is comparable to Europe, but it’s also difficult to ask other countries to bail out Ireland when Ireland is determined to keep the lowest tax on profit in Europe," said Mr Sarkozy.

Luxembourg's finance minister said today the EU should regularly review the terms of Ireland's bailout and discuss other options instead of demanding that it raise its corporate tax rate.

"We have to constantly review the pricing and maturity" of the bailout loans, Luc Frieden told reporters this morning. "I think there can be other options that should be explored. Taxation is not an aspect which is harmonised in Europe."

The tough talking on Ireland’s corporate tax regime came as euro zone leaders agreed to reduce the interest rate on Greek bailout loans by 1 percentage point and to extend their maturity to 7½ years from three years. Greece reluctantly agreed to embark on a €50 billion privatisation plan in return for the cut.

Euro zone leaders also resolved to increase the effective lending capacity of the European Financial Stability Facility temporary bailout fund to €440 billion from some €250 billion.

In addition, they agreed to give the facility and the future permanent bailout fund powers to intervene in primary debt markets to buy sovereign bonds directly from euro zone countries.