Justin Doran
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The Need to Maintain Ireland's Corporate Tax Rate

3/28/2011

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Most groups within the government and opposition hold a clear position that Ireland’s corporate tax rate should be left at its current level and have opposed every motion by Irish and EU commentators to raise the rate of corporation tax.  However, standing apart from their companions is the United Left Alliance (ULA).  This group opposed the current corporate tax level and has been a strong advocate for raising corporate tax.

One of the more worrying promises made by this group is their statement that they will increase corporation tax so as to capture more of the share of profits made by multinational companies.  While this is possibly quite a populist policy it has the potential to create extensive damage to the Irish economy.  The basis for the increase, according to the ULA, is the fact that these multinational companies are still making a profit.  This is said almost as if these companies are committing a crime by being efficient and generating revenue in these trying economic times.  The ULA seem oblivious to the fact that, by making these profits, these multinational companies are able to provide sustainable and steady employment to a large number of people while also contributing substantially to our economy and government tax receipts. 

Should Ireland raise its corporation tax rate this would prove detrimental.  These large multinational companies are located in Ireland specifically because they can make a profit here.  It is our low cooperate tax rate which has attracted these firms to Ireland and it is this low tax rate which retains them in this country.  Should the tax rate be increase, it does not matter whether this is by 1% or by 15%, it will send a signal to these companies that Ireland is no longer committed to providing stable, low cooperate tax rates for multination enterprises.  And what effect do we expect this to have?

This will discourage investment by these firms in our economy and will result in a relocation of firms from Ireland to other countries.  Take the example of a well know computer manufacturer in Limerick in recent years.  While still making a profit operating in Limerick, a better opportunity presented itself in Eastern Europe.  Despite having a plant and facilities already well established in Limerick, this firm uprooted and left Ireland with significant job losses occurring as a result.  It was not that there was anything wrong with the Irish plant, it could just be done cheaper somewhere else.

An increase in the corporate tax rate by any Irish government would result to a similar situation occurring.  Overnight, it would become more expensive for these firms to operate in Ireland.  Could we expect these firms to accept this and continue to operate in Ireland even though other countries would now offer them a higher profit margin?  I don’t think this is realistic.  These firms will leave Ireland for more competitive economies.  And, given that foreign multinationals are among the few firms in Ireland actually generating employment, we should ask ourselves do we really wish to chase these companies away?  
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    Justin Doran is a Lecturer in Economics, in the Department of Economics, University College Cork, Ireland.

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