Harney rejects EU role in setting taxes

The Tánaiste, Ms Harney, has warned against any attempt at the Convention on the Future of Europe to give the EU a role in setting tax rates in member-states, writes Denis Staunton.

Describing the Government's position as political rather than economic in its basis, she said the politics of taxation went to the heart of democracy.

"It's a position based on the view that political communities in Europe are still defined primarily around the national state, the EU member-state. The politics of taxation will remain essentially national. Because we are deeply attached to democracy in Europe, the politics of taxation are not over.

"You might as well say that democracy is over, and we have handed over government to some technical machine. In no political community, and at no level of government, is this desired by any people I know of in the EU."

Ms Harney was accepting an award from the Taxpayers' Association of Europe, a conservative pressure group that campaigns for lower taxes and legislation to "prevent unjust harassment by tax collectors, and provide clear information about government taxation and expenditure".

The Tánaiste said taxation on labour, whether it takes the form of direct tax or social contributions, destroys jobs. And she argued that low taxation was fully consistent with the European social model.

"There is nothing in European values that says we should acquiesce in an 'acceptable level of unemployment'. We lived with that for too long in Ireland. And there is nothing in the European social model that requires us to maintain policies that result in structural unemployment."

Recalling the poor state of the Irish economy in the 1980s, when unemployment reached 17 per cent, Ms Harney said the crisis offered an opportunity to transform the politics of tax in Ireland.

"It was the backdrop for the formation of the Progressive Democrats, a party committed to free and open markets and personal freedom and responsibility. The crisis challenged us to transform permanently not just the economy of Ireland, but the politics of tax in Ireland," she said.

She said lower taxes played an important role in Ireland's economic recovery but acknowledged there were other factors.

"Clearly we used other policies too. We agreed responsible wages agreements in social partnership. We controlled public spending and qualified for the single currency. And we received very helpful financial support over many years from the European Union," she said.

Ms Harney said EU governments had failed to fulfil a commitment they made 10 years ago to boost employment by reducing tax on labour. Cutting taxes would represent a major step in tackling structural problems in many European countries.