Low corporation tax rate unsustainable - ICTU

The State's low rate of corporation tax is unsustainable and is fuelling a "race to the bottom" in which the ultimate losers would be the State, an Irish Congress of Trade Union (ICTU) advisor said today.

According to Mr Paul Sweeney, ICTU economic advisor, reducing corporation tax to 12.5 per cent was a policy mistake. "An industrial/development policy which is based on artificial tax subsidies is not sustainable. It has Ireland leading the race to the bottom in Europe - a race which cannot be won by any state".

Addressing CORI's annual social policy conference, Mr Sweeney said this "race to the bottom" has intensified with European Union enlargement, adding it was a race the Republic could not win.

The reason Ireland will ultimately lose is that the State will be undercut by lower cost economies. "Estonia actually has a rate of zero for many firms. This will be hard to compete with," he said.

He also suggested that the competition to lure investment through low corporation tax regime would, "lead to a lowering of standards" in other areas. Mr Sweeney said "it could be followed by lower labour regulations and lower health and safety regulations".

Difficulties with the low corporation tax regime were likely to be exacerbated with the US Government looking to shut what are in effect "tax havens" - which the Republic has become - for US multinationals. Mr Sweeney said.

The State's corporate tax rate has provoked ire from some of our European Union colleagues. French finance minister, Mr Nicolas Sarkozy, said: "If Ireland was unwilling to fund its public services by levying taxes on profitable companies operating here, then it should not get handouts financed by the taxpayers in the rest of Europe".