Soft Landing On EU Funding

 

The Irish delegation led by the Taoiseach, Mr Ahern, appeared not displeased after last week's meeting with the EU Commission on corporation tax rates and the future of structural and cohesion funding. No binding commitments appeared to have been made by either side but the general outline of EU policy towards this State in relation to corporation tax and regional funding has now been sketched. Specifically, the meeting confirmed that manufacturing companies already in Ireland will continue to pay corporation tax at 10 per cent until 2010, while those in the International Financial Services Centre (IFSC) will pay at this rate until 2005. It also seems clear that Ireland, despite its rapid economic growth, will enjoy something of a "soft landing" in respect of structural and cohesion funds. The estimated £2 billion that Ireland receives annually from the EU will be gradually scaled downward in the next structural funds package, which will run until 2006. There are also good prospects that Ireland will still be eligible to secure a good slice of EU Cohesion Funds - which are primarily used for infrastructural projects in the poorer EU states - even if it makes the first wave of monetary union as now seem probable. The Government is to be commended for its tough defence of the existing corporation tax regime. Ireland's low level of corporation tax has been a critical factor in helping to attract inward investment. The argument advanced by some larger EU states that Ireland has used low corporation tax to unfairly attract investment is more than a little disingenuous; most of these states operate some kind of low-tax regime and/ or benefit from very substantial EU state aids to industry. There are still some key issues unresolved. With an eye to longer-term projects, business will want to know what will happen after the 10 per cent rate expires in 2010. And the Commission will want further elucidation on the vexed question of how Ireland will move towards one corporation tax rate. The Government has said that it will gradually reduce the existing standard 36 per cent rate. The Budget promised that a standard rate of 12.5 per cent would be introduced in 2005, but it is not clear if this will mollify the Commission. A key issue for the Commission will be how quickly the existing 36 per cent rate is reduced towards 12.5 per cent. Mr Ahern has used his well-honed negotiating skills to good effect in the negotiations on structural and cohesion funding. The traditional reluctant attitude of Government to long overdue regionalisation in this State was swiftly put to one side, once it became clear that some kind of regional sub-divisions will be required in order to draw down funding. The Taoiseach is right to press the case for a soft landing. Ireland's current economic growth may be the envy of our EU partners but our transport and social infrastructure remains at rudimentary levels. Ireland is only now enjoying the kind of prosperity that many EU states have enjoyed for a generation or more; it is much too early to make this State a victim of its own success.