Hanafin rules out increase in State's corporation tax rate

 

The Government can not be forced to raise the corporation tax rate - even under pressure from Europe, Minister for Tourism Mary Hanafin said today.

Ms Hanafin said the Government had no intention of raising the 12.5 per cent rate, which she said was responsible for significant inward investment and for supporting 190,000 jobs.

She was speaking after corporation tax emerged as a battleground between the Government and the EU authorities as work begins on drawing up a drastic four-year austerity plan to improve the condition of the State's finances.

EU economics commissioner Olli Rehn yesterday said that no tax policy changes should be excluded from the Government’s plan to return the national deficit to 3 per cent of gross domestic product by 2014.

Mr Rehn’s comments, as well as briefings from senior European officials, were taken as raising doubts over whether the State could achieve such dramatic reductions in the national deficit while retaining the 12.5 per cent tax, which has proved controversial with some EU countries.

The American Chamber of Commerce in Ireland reacted strongly to the suggestion the rate may rise. “At a time when the economy is in deep recession, nothing which would impact on the continued investment in Ireland by our existing base of multinationals, or would deter new investment in Ireland can be countenanced,” its president Lionel Alexander said.

The Department of Finance last night unequivocally ruled out any change in corporation tax. “This commitment is protected, in an EU context, by the principle of unanimity in taxation matters. That was further enhanced by the insertion of a legal guarantee in the Lisbon Treaty. The 12.5 per cent corporation rate is a cornerstone of the Irish industrial policy,” said a spokesman said.

Questioned about the matter today, Ms Hanafin said it was inevitable the State would look at raising extra funds through taxes but ruled out raising the corporation tax as a means to do this.

“We have the right to retain control over our taxation matters and we see this as one of the lynchpins of our economic policy,” she told RTÉ Radio

The economist Colm McCarthy, who chaired the “An Bord Snip Nua” cost-cutting report, yesterday said obvious developments in taxation included water charges.

Taoiseach Brian Cowen, asked about corporation tax, said taxes were matters for national governments. “It’s really important not to be drawing any speculative conclusions whatsoever.”

Fine Gael leader Enda Kenny challenged Mr Cowen to clarify his stance. “The Taoiseach’s ambiguity and evasiveness about the future of the low rate of corporation tax is unhelpful, to say the least.” Mr Kenny said

Fine Gael wanted the rate to remain, contending any increase would be a disaster for investment.

The Taoiseach also indicated he would not be seeking consensus from Opposition parties in advance of the plan’s publication. Instead, he challenged them to present alternative plans.

Speaking in Brussels yesterday, Mr Rehn said: “It’s a fact of life that after what has happened, Ireland will not continue as a low-tax country, but it will rather become a normal tax country in the European context.

“You ask about tax increases, I do not want to take any precise stand on an issue which is for the Irish Government . . . to decide, but I would not rule out any option at this stage.”

A report in French daily Le Monde said Brussels wanted the 12.5 per cent rate increased.

Asked whether the four-year deadline would impose too severe a burden on Ireland, European Central Bank chief Jean-Claude Trichet said the plan was “absolutely essential in terms of the credibility of the country”.