GERMAN POLITICIANS have dismissed Fine Gael leader Enda Kenny’s insistence that Ireland’s corporation tax is off the negotiating table ahead of next month’s EU summit.
Mr Kenny told German chancellor Angela Merkel in Berlin yesterday that Ireland was prepared to “pay its way and play its part” in euro zone reform, but that a change of government would not alter the official position on the 12.5 per cent tax.
A Franco-German initiative for far-reaching euro zone reform, to be discussed at next month’s EU summit, includes proposals to harmonise the corporate tax base and co-ordinate the state retirement age.
“I made it perfectly clear to the chancellor that, from our point of view, the corporate tax rate and the consolidated tax base are of absolute fundamental importance to Ireland and that we could not concede any movement on those,” said Mr Kenny after a 40-minute meeting with Dr Merkel at the headquarters of her ruling Christian Democratic Union (CDU).
However, leading CDU officials familiar with yesterday's talks told The Irish Timesthat the corporate tax issue was by no means off the agenda.
“Everything depends on everything else and we’re not interested in one individual issue being factored out,” said a close political adviser to Dr Merkel.
A recent CDU strategy paper, seen by The Irish Times, insists that "distorting" corporate taxes must be abolished.
Mr Kenny and Dr Merkel are no strangers and know each other from regular meetings of the joint European People’s Party (EPP).
In keeping with protocol yesterday’s low-key visit by the Opposition leader took place away from Dr Merkel’s chancellery office.
The two politicians joked and shook hands twice for photographers before talks Mr Kenny described as a “briefing, not a negotiation”.
Ireland had already signed up to many elements in the Franco-German “competitiveness pact”, he pointed out, such as a higher state pension qualification age and fiscal consolidation.
He raised “the possibility of movement on the interest rate” of EU-IMF loans and the burden of bank debt, but Dr Merkel gave nothing away.
Mr Kenny told the German leader he is anxious to reconfigure Ireland’s banking debt problem by taking a closer look at burden-sharing with senior bondholders.
An analysis conducted for Fine Gael by a major bank suggests that less than half of Irish sovereign bonds are still in possession of their original European owners. A majority are now owned by hedge funds and other investors from Luxembourg to New York “having a punt on Ireland”, as one Fine Gael official put it, thus making “haircuts” for private investors less politically problematic.
An adviser to Dr Merkel said the negative image of Germany in sections of the Irish media was mentioned during the talks. “Less in detail than in general,” said the official.
Asked about the negative reporting, Mr Kenny said that Ireland’s problems were “not caused by Europe but a lack of regulation, a lack of oversight and Government incompetence”.
GERMAN ANGER: LEADING POLITICIANS SURPRISED BY KENNY REMARKS
GERMANY'S DISPLEASURE with Ireland's corporation tax regime re-emerged during Enda Kenny's flying visit to Berlin yesterday.
Leading German politicians reacted with surprise and anger that Mr Kenny told Chancellor Angela Merkel that a Fine Gael-lead government would "not contemplate, in any circumstances, moving" on the tax question.
CDU finance spokesman Michael Meister said greater harmonisation of the corporate tax base was essential to effectively tax multinational companies with several European bases.
"It would reduce administration costs with companies and member states and would, as a whole, make the EU more competitive," said Dr Meister, conceding that a one-size-fits-all corporate tax rate was not on the table.
A draft CDU position paper, seen by
The Irish Times, to be approved next week, makes clear the continued pressure Dr Merkel is feeling from her senior MPs and backbenchers, who say their voters cannot reconcile Ireland's low corporate tax with the German-led bailout.
Irish officials have made progress in negotiations with their German counterparts, making the case that, as a whole, Ireland's tax take is comparable to other European countries.
The CDU paper from earlier this month speaks of "necessary regulation competition" on taxes that "leaves room for minor national adjustments".
"In the face of the differences in our common Europe, our leitmotif is 'unity in diversity'," the paper adds.
Dr Merkel's political party is quite clear: no to harmonised tax rates; yes to a harmonised tax base.
"We have learned that . . . one-sided tax strategies can develop into a danger for the entire community," said the CDU paper.
"Decisions over the location of a company cannot be permitted with distorting economic-political factors like, for example, low tax rates."
The draft paper suggests that future breaches of the beefed-up stability pact, to be agreed at next month's summit, should result in tougher sanctions that do not involve financial penalties.