The Minister for Finance, Mr McCreevy, was in his element. In a break during last week's EU finance ministers' meeting he had come down to talk to journalists about the day's discussions and was laying into any idea of corporation tax harmonisation. The previous night the EU's Socialist finance ministers had firmly put the issue back on the EU's agenda. Until now the EU has confined itself, through a voluntary code agreed in December, to bringing some order and a level playingfield to member-states' internal tax regimes. Among other fruits of that deal was Ireland's July agreement with the Commission allowing it a transition to a 12.5 per cent common rate of corporation tax by 2003. There has been some success, too, in agreeing on measures to tax savings of non-residents and on VAT and excise harmonisation.
Even that much was difficult and slow. Member-states jealously guard their national vetoes over taxation and the word was definitely "co-ordination" not "harmonisation". Now the socialists want to go further, arguing that the advent of the single currency will expose competitive advantages even more sharply than ever. Mr McCreevy was drawing his line in the sand. Thus far, and no further. He insists that such ideas are an affront to democracy itself. Harmonise taxes in the EU and you harmonise politics itself. The electorate, he argues, loses its right to choose between fundamentally different approaches to government, between those who believed in high and low tax levels, between those who believe in state provision and those who insist on the taxpayer's right to provide for himself.
Was he not doing precisely the same to the electorate, he was asked, by committing future Irish governments to a 12.5 per cent common rate of corporation tax from 2003? Not at all. He insists there is a broad Dail consensus on this approach. He could have added that the 12.5 per cent rate was actually first proposed by his predecessor, the Labour leader Ruairi Quinn. Labour, dependent on the votes of workers in the multinational sector, is not going to rock this boat.
Yet the fact that the taxation of companies is no longer the ideological battlefield in Ireland that it once was should not obscure the nature of the debate at EU level. That the issue should divide two of the most right-wing governments of the Union, Ireland and Britain, from the bulk of their partners is no coincidence.
In truth, however, the argument is somewhat old-fashioned. It may have been a different matter 20 years ago, but we now live in the age of globalisation and extraordinary capital mobility. More and more governments, even on the left, are pursuing of necessity a similar policy to that in Ireland - the Danes only days ago announced that they are going to slash company taxation. Once one of the highest-taxed countries in the industrialised world, the Social-Democrat-led government has said it will introduce a zero tax rate for repatriated dividends of international holding companies based in Denmark. The aim is simple: to displace Holland as Europe's leading holding company location.
Although the Dutch have nominally higher rates of tax than Ireland, a generous system of allowances for reinvestment brings the real rate below us, Irish officials claim. And the British Chancellor, Gordon Brown, boasted on Monday that far from agreeing to curb tax competition he had already cut corporation tax twice and would do so again if he could.
Between the left and right of the socialist leadership of Europe there is a profound difference on the issue, with New Labour regarding agreements on tax harmonisation as a bit like trade tariffs, a form of protectionism that allows governments to conceal inefficiencies and put off the challenge of reforming over-expensive welfare states.
The left sees the Irish policy as a beggar-my-neighbour approach to taxation which builds Ireland's employment-generating success on the back of jobs pinched from its EU neighbours. At the same time such tax competition drives down the revenue-raising potential of governments, undermining their ability to fund important social programmes. Irish protestations that the tax regime is but one of several factors attracting investment, and that the Irish system is transparent while others provide other hidden subsidies, do not wash. Germany's new Finance Minister, Oskar Lafontaine, made no bones about it on Monday when he spoke, without naming Ireland specifically, about the anomaly of net recipients of EU cash being tax oases. "That does not conform with EU solidarity," he told journalists. On Sunday night, in the bar of his hotel, he did mention Ireland.
Mr McCreevy may regard the linkage as unfair, yet "solidarity" is a word much used by Ireland in making its case for structural and cohesion funding.
With the support of the Commission, the Irish and British vetoes may well see off attempts this time to harmonise the corporate tax regime, but Mr McCreevy cannot expect to get off scot-free without collateral damage to other Irish interests in the process. Our EU partners have also watched with increasing cynicism the regionalisation debate, seeing it simply, in Monika Wulf-Mathies' words, as subsidy-shopping aimed at squeezing every drop from the EU cash machine. "That's only fair, we're still developing . . .", we say again and again.
Give us a break!
The Germans are only too well aware that while Irish GDP per capita is now some 106 per cent of the EU average, the Irish are paying less and less tax, while those in the rest of the EU who feel they are footing the bill see their tax bills rising. Total Irish taxes went down from 36.7 per cent of GDP in 1994 to 34.1 in 1997, while in the same period in the EU as a whole taxes rose from 41.9 to 42.6 per cent. In Germany taxes in 1997 took 41.6 per cent of GDP.
That's a choice we make, as Charlie McCreevy would point out, when we choose a government, but a choice with a price in the erosion of goodwill from our fellow memberstates. Solidarity cuts two ways.
