Belfast Telegraph

A small rise in big-business tax for a limited period might get the Republic out of trouble

Bill Gates or Mark Zuckerberg seem nice enough chaps. But perhaps making the Microsoft and Facebook billionaires even richer at the expense |of the Irish taxpayer is questionable during the economic crisis?

Ireland's 12.5% corporate tax rate is the ‘sacred cow’ of the economy. Conventional wisdom suggests it can't be touched or even looked at sideways. All of the multinationals would pull out in a shot, there'd be no foreign direct investment and an export-led recovery would stall.

Groupthink like this needs to be challenged. Last week, it was. Michael Smurfit may now be in semi-retirement in Monaco but he remains one of the most original thinkers in Irish business. Mr Smurfit suggested that the 12.5% corporate tax rate could be increased to 15% with certain conditions.

His point that the rate should be examined is not a bad one. It's not because the Republic has gone all leftie, it's just because there isn't anywhere else to turn. Could the rate be raised for a defined period? Maybe four years. It could then be brought back down to 12.5% or lower. About €2bn might be raised on a conservative estimate. It would also widen the tax base — one of the fatal flaws of our economic model.

The size of the increase is key. A jump of 5% or more would be lunatic. Too much tax is kryptonite to economic growth.

The four-year time scale would provide some visibility for corporates. Multinationals would need something in return. Not photocalls with the minister but something tangible. Something with a wow factor. Perhaps the Republic could commit to a far lower rate of corporate tax for businesses creating a certain number of jobs which kicks in after four years, much higher R&D grants or really slashing employer taxes. Or what about paying ridiculously high rates of interest on corporate deposits? A little less than the 5.8% the IMF/EU charges.

Education should be turned inside out. Mandatory Leaving Cert Irish could be replaced by sciences or computing. Red tape needs a visit from Freddie Krueger. Wages and costs, will need pummelling. There's a Nobel Prize to be won by the person who can come up with a system to increase taxes on business but also stimulate growth.

With the Government's four-year plan to cut the budget deficit based on wildly optimistic figures for growth, it is increasingly possible that we the Republic won't meet EU targets. Where else can the Government turn to make up the shortfall? Recently the Financial Times's authoritative ‘Short View' column suggested it was highly likely that Ireland's businesses could end up taking some of the slack.

By the end of November, some €3.7bn in corporate taxes was sloshed into the Exchequer — well above the €3.16bn forecast for the whole year. The tax take is a splodge of domestic and multinationals paying a variety of different rates, rather than just the 12.5%. It also includes taxes on non-trading income as well as a muddle of allowances.

But some of the multinationals have a far lower rate. An investigative series by Businessweek magazine revealed how Google and Forest Laboratories were paying an effective tax rate of just 2.4% in Ireland, through clever and legal moves which involved shuffling patents and royalty payments through various other low-tax regimes.

Money was just funnelled through Ireland rather than actually being earned here.

But would it be bonkers? We've heard all the arguments from multinationals about how direct foreign investment would dry up or less “embedded” companies would move to lower-cost locations. Having a finite term on this tax increase would cause them to look closely at numbers. A decision to exit wouldn't be quite so clear cut. A firm generating €100m in profits would see the tax bill jump by €10m over four years. Would it be worth moving for that? How much would relocating to Singapore or Poland actually cost?

It's been a good time to lure US multinationals to the Republic’s shores. Citi announced 250 jobs, with Facebook another 100 — and tax wasn't the only reason Facebook expanded here.

“This is not a very popular thing to say, but we've seen time and time again that we can go in and have conversations with the Irish Government to solve problems... there's often more bureaucracy in other countries,” said Facebook's Irish operations chief Colm Long, who also praised Ireland's immigration policies.

Clearly, Ireland has a lot of things going for it. Keeping |tax rates low is a principle that is central to any recovery — but for a limited period |big business could chip in |more to keep things that way. Consider it a short-term bail-in.

Belfast Telegraph