Finance minister Brian Cowen TD told Irish employers last week that is committed to maintaining Ireland’s 12.5pc corporation tax – a key component in the nation’s inward investment success – in the face of EU efforts to introduce tax harmonisation or a minimum rate of corporation tax.
Corporation tax is one of the key pillars on which the Irish economy of today was built, making Ireland attractive in particular for technology giants like Intel, HP, IBM, Microsoft, Apple, Google and Dell to locate key operations, creating thousands of jobs.
Each operation in turn has led to billions of euros in indirect revenues for smaller firms that supply these operations.
Addressing the Small Firms Association’s (SFA) annual lunch on Friday, the chairman of the Small Firms Association Pat Crotty said that not only must Ireland preserve its corporate tax rate, it must look at possibly even reducing it in the face of competition from other economies.
Crotty said: “Lower business taxes increase government revenues, investment and employment: Fact!
“We have already seen that since Ireland introduced the 12.5pc rate of corporation tax, others have followed. At the time of its introduction, this was visionary. Now it is becoming commonplace. Ireland must continue to have the lowest corporate and capital taxes available,” Crotty added.
Addressing the SFA lunch, Minister Cowen said he expects the rate of inflation – a major concern among Irish employers – to average 2.6pc next year which will be lower than the 4.9pc in 2007.
He also said that unemployment is expected to remain low while another surplus for public finances is in prospect.
Cowen said that Ireland’s success of the past 10 years has created pressures on competitiveness. Coupled with dramatic changes in international markets, he said it is a challenging environment particularly for small firms.
But he said there are reasons for optimism. “Manufacturing output in the first six months of this year increased by over 7pc – the strongest start to a year in five years. Exports have increased by 6pc. New business startups – one of the most significant benchmarks of confidence in our economy – are very healthy.
“The Irish economy is in a period of transition,” Cowen continued. “There will be some shortfall in overall tax receipts reflecting developments in some taxes such as stamp duty. With the moderation in the residential construction sector it is important that other sectors, such as small and medium firms, become an increasing source of economic growth.”
On the subject of maintaining corporation tax at 12.5pc despite pressures from the EU to create a consolidated corporation tax base, Cowen said: “We believe that resources would be better targeted at real barriers and at clearly identifiable problems that will yield true benefits for business.
“It is important that all interested parties make clear their opposition to this proposal and work to convince their European counterparts that a common consolidated corporate tax base would be detrimental to business, member States and the EU’s interest,” Cowen said.
In terms of boosting innovation among small businesses, Cowen referred to the EU giving the go-ahead to his decision in last year’s budget to revise and expand the Business Expansion Scheme and also pointed to the Innovation Voucher Fund, which awards vouchers of up to €5,000 to allow small companies explore a business opportunity.
By John Kennedy