|Posted by Brendan O'Rourke on July 16, 2020 at 12:55 PM||comments (11)|
Ireland’s low corporation tax strategy is rapidly running out of road and only if we act quickly to get a fair corporation tax for Europe can Ireland hope to shape the regime under which we have to develop our enterprise policy
Ireland’s export-oriented foreign investment strategy was extraordinarily successful in attracting foreign direct investment (Barry & O’Mahony, 2017). It is easy to underplay the important role of the enterprise and vigour of the Industrial Developments Authority’s staff and other public servants in this success, now the issue of tax competition is so prominent. This is especially so since Ireland, from Shannon Airport’s invention of the duty-free shop in 1947 and its tax-Free Zone in 1959, has had much success in the tax competition game.
Alas, for Ireland the corporate tax competition game has become a losing one. From the 1990s, the competition in low taxes for multinationals has become intense (Devereux, Lockwood and Redoano, 2008). This has led to the global tax take from multinational corporations falling so radically, that states are been left without resources to fuel the technological innovations of the future (Mazzucato, 2018).
Tax competition is now so intense that it is a race to the bottom with Ireland not being able to even compete. This for two reasons – one is the intensity of the competition, for example Estonia in 2017 exempted all retained earnings (i.e. those not returned to shareholders) from tax. Ireland, though no slouch at this game in the past, cannot now with its increased wealth, to go all the way down to the levels of less developed countries.
The second reason that Ireland will not be able to compete using a low corporate tax strategy, is that big developed rich countries are now so hurt by corporation tax competition that they are taking action that previous winners at the game, like Ireland, can no longer escape (Bazel, Mintz and Thompson, 2018). And this is only the beginning, as economists work busily on steps like the sales revenue tax that would counter taxation competition and might prove profitable even for just one large country to adapt (Piketty,2020)
Our past success is stopping us properly thinking and talking about the issue. Our media reflects a less than critical stance on low taxes for multinationals (Graham and O’Rourke, 2019) and such media reinforces that stance (Kneafsey and Regan, 2019). In defending corporation tax sovereignty from the EU and attacking sales revenue tax proposals, our politicians and policymakers may just be clever enough in defending a route for strategic retreat. I hope so. I fear however that we are ‘fighting the last war’, and so advancing our failure in the new circumstance.
Let’s us remember too that investing so much in the tax competition game, we suffer costs. One of these costs is an expenditure of political capital in the EU, membership of which is essential to our foreign direct investment strategy and all likely alternatives paths to development. There has also been a cost in the inequalities created by having a highly developed high-skill foreign direct investments alongside an underdeveloped indigenous sector (Regan and Brazys, 2018). The relative neglect of indigenous sectors, while an issue that many have attempted to address since at least the Telesis report (1982), remains a problem. More subtle has been the effects on diverse aspects of policy from education to environmental policy, where the mantra of the need to attract multinational investment has dominated (O’Rourke, forthcoming).
It is difficult to depart from a well-known path that has led to much success, but essential to do so when that path is heading nowhere. Merely pretending that the world has not changed will not spare us from the cul-de-sac of our low corporate tax policy. The recent Apple decision and the success of Pascal Donohue in becoming head of the Eurogroup of Finance ministers gives Ireland, perhaps its last chance to help shape the EU future corporate tax regime, rather than be a mere victim in its inevitable development.
Barry, F., & O’Mahony, C. (2017). Regime Change in 1950s Ireland: The New Export-Oriented Foreign Investment Strategy. Irish Economic and Social History, 44 (1), 46-65.
Bazel, P., Mintz, J., & Thompson, A. (2017) . 2017 Tax Competitiveness Report: The Calm Before the Storm (SSRN Scholarly Paper ID 3136437). Social Science Research Network. https/papers.ssrn.com/abstract=3136437
Devereux, M. P., Lockwood, B., & Redoano, M. (2008 ). Do countries compete over corporate tax rates? Journal of Public Economics, 92(5), 1210–1235. https/doi.org/10.1016/j.jpubeco.2007.09.005
Graham, C., & O’Rourke, B. K. (2019). Cooking a corporation tax controversy: Apple, Ireland and the EU. Critical Discourse Studies, 16(3), 298–311. https/doi.org/10.1080/17405904.2019.1570291
Kneafsey, L., & Regan, A. (2019). The Role of the Media in Shaping Attitudes Toward Corporate Tax Avoidance: Experimental Evidence from Ireland (No. 201904; Working Papers). Geary Institute, University College Dublin. https/ideas.repec.org/p/ucd/wpaper/201904.html
Mazzucato, M. (2018 ). The Value of Everything: Making and Taking in the Global Economy. Allen Lane.
O’Rourke, B. K. (forthcoming). Media discourses on the economy in Ireland: Framing the policy possibilities. In M. Murphy & Hogan, John (Eds.), Policy Analysis in Ireland. Policy Press.
Piketty, T. (2020). Capital and Ideology. Harvard University Press.
Regan, A., & Brazys, S. (2018 ). Celtic Phoenix or Leprechaun Economics? The Politics of an FDI-led Growth Model in Europe. New Political Economy, 23(2), 223–238. https/doi.org/10.1080/13563467.2017.1370447
Taylor, G. and Murphy, C. (2002) ‘Environmental policy in Ireland’, in G Taylor (ed) Issues in Irish Public Policy, Dublin: Irish Academic Press, pp. 80–98.
Telesis. (1982). A Review of Industrial Policy: NESC Report No.64. National Economic and Social Council.
|Posted by Brendan O'Rourke on March 26, 2020 at 3:35 PM||comments (3)|
How about a price ceiling on rents at 20% less than 9th March 2020
It is good to see the government put a freeze on rent and evictions, but I think more needs to be done. Given the shock to the economy and incomes, current rents are no longer related to market conditions. The market would probably show this itself if it ‘was let rip’ with people relocating to cheaper locations now that the reasons for living in expensive locations (i.e. their wages) have disappeared. Thankfully, the state’s massive intervention such market ‘adjustment’, and the pain for all that would involve, impossible. Yet property income should share some of the cost of this, for rents levels are being kept up by the public purse and state restrictions. The state needs to complement its action by imposing a reduction in rent for residential accommodation in the order of say, 20%. Market forces should lower rents for those properties coming on the market. State funds, either paid directly in rent or through subsidizing replacement income should not be wasted on keeping rents inflated.
This is not meant as an attack on landlords and may indeed help them in several ways. One way is that such a rent reduction would be useful in renegotiating terms with any lenders. Another is that it makes tenants less likely to simply walk away from tenancies leaving the landlord with no rent and no tenant. Even if such tentants formally vacate the premises, the revenue from new lettings may well be much lower than 80% of the March 9th rent, and the hassle of renegotiating greater than normal. Indeed, given some ancedotes of some private arrangements may be the mandated reduction should be greater and it should certainly not be seen as a maximum rent reduction.
Large companies and anchor tenants have probably already negotiated rent reductions or rent holidays for themselves, and other progressive landlords have likely acted already with a sense of enlightened self-interest and/or social responsibility. The state needs to mandate a rent reduction if tenants without bargainning power or progressive landlords are not to suffer in comparison to others. In terms of economic recovery this is vital particular for smaller Irish enterprises.
If needed there could be sunset clause, of say June 2021 or end of December 2021, in any such legislation so that this form of rent control does not get confused with the more long-term changes that are needed made in Ireland's property market.