Ireland's corporate tax rate not a factor in economic bust

During the Celtic Tiger years there were all sorts of articles in the press outside Ireland trying to explain why we were having such a boom. Some were better informed than others and just about everybody better than Tom Friedman, who declared that it was thanks to "free" college education and national health care. (Can we now blame college professors & doctors for the bust?!)

Given all the attention the Celtic Tiger received it's hardly a surprise that there are many who are now trying to explain what went wrong. Again, however, some are way off the mark. This week we had two prime examples.

Richard Murphy on the Guardian's web site and two economists, Peter Boone & Simon Johnson, on the New York Times' web site identified Ireland's low corporate tax rate as a primary cause of the burst-bubble economy we have now. They are wrong, wrong, WRONG.

Ireland's 12.5% corporate tax rate is one of the best things that the Irish government has done from an economic policy perspective. The low corporate rate is one of the (often the only) key incentives to attract footloose capital to Ireland, which is after all a fairly underpopulated, small island with difficult transport links to Europe's main population centers. The recent disruption to Irish commercial life caused by the volcanic ash made that pretty plain.

There is a lot of guff spoken about how foreign companies are attracted to Ireland's "well-educated population", but there is no way that any American (or other) company can objectively assess the Irish education system and compare it with any other EU nation's. The best we can hope for is that we believe our own propaganda so that we make a convincing case to those corporate heads who are looking for an EU base.

It is true that we have a younger population, which I'm sure helps bring in companies like Oracle, Microsoft, Google, Facebook and others. Still, I doubt that would be sufficient if not for the fact that those companies know, without a doubt, that their profits here will be taxed at 12.5%. The tax rate is so important that no major political party makes a case against it and it is often spoken of as being so crucial to Ireland's economic well-being that the Irish government would block any EU move to force a change (sort of a nuclear option).

I don't know what their motives might be, but these gentlemen would be better served investigating the effect of being part of an economically inappropriate (for Ireland) currency union or the failure of government regulators to control the banks than to deny the success and benefits of one of the government's few genuine successes. 12.5% is what it is and where it should stay.

Ireland: Headquarters for the world

Over the past year or so there's been one good economic story for Ireland that has sort of been lost amidst the reports on company closings, job losses, bank bailouts and government spending cuts. The little snippet of good news has been the number of company's that have relocated their headquarters to Ireland.

Today's Irish Times reports that United America Indemnity is moving its headquarters to Ireland from the Cayman Islands. I never heard of United America Indemnity before, but the Irish Times says the company had previously announced that it was moving its headquarters to Switzerland, but has now reconsidered. Can't be bad news, right?

UAI says they are moving here because "Ireland offers an attractive business environment, a highly educated and motivated professional workforce, a comprehensible legal system grounded in Common Law, a sophisticated regulatory environment, and an extensive global network of international treaties."

Last May accountancy firm Accenture announced that they were moving their headquarters here from Bermuda. Accenture said, "Ireland's corporate, legal and regulatory environment alongside its tax treaties with European Union member states, the United States and other countries around the world where the company does business was the reason for the shift."

At the time Ingersoll Rand announced that they were shifting their headquarters to Ireland from Bermuda they too cited the "legal and regulatory environment" as one of the decisive factors. There are a number of other companies that have made similar announcements and mentioned the same

So what's going on here?

Early last year President Obama announced that he was going to press for changes in American law that would put pressure on American companies operating out of tax havens. At the time there were fears here that Ireland would be listed as one of the tax havens, but that didn't transpire.

Last April the G20 nations unveiled an "internationally agreed tax standard," which Ireland has implemented. So, despite it's low corporate tax rate – 12.5% - the transparency of the Irish system means Ireland is not a tax haven. Ireland also is willing to share information with other jurisdictions, something that tax havens are loathe to do.

Ireland is simply the OECD country with the lowest corporate tax rate and we're part of the EU, which makes it an attractive place to have your headquarters. That's the "legal and regulatory environment" that these companies find so attractive.

That 12.5% may sound low, but 12.5% of income that you wouldn't have otherwise can add up to sums that make a big difference here. I don't see any potential risk to the country from this policy, which is one for which the government should be applauded.

Even though it leaves me feeling a bit uneasy knowing that these American companies are not paying tax in America as they probably should, if companies are going to relocate their headquarters to save on their tax bill I'm sure glad it's in Ireland rather than anywhere else.

Roll out the carpet for America's bankers

Back in early December, economist David McWilliams stated that the changes to British banking laws represented a "gilt-edged opportunity" for Ireland and our struggling economy and underemployed young graduates and workers.

Today's NY Times confirms what McWilliams said last month. The Times reports that British based American bankers are not prepared to accept Britain's new laws on bankers' compensation. The British government wants to restrict banks' and other finance houses' bonus policies and has imposed a limit of £1m for a bonus, beyond which only 40% of the bonus can be used immediately. This change, coupled with Britain's new 50% tax on bankers' bonuses has made American banks unhappy.

As McWilliams says, it's not hard to sympathize with the British motives, but that doesn't change the fact that those disaffected American banks could be a real boost to our small and weak economy. If they can be enticed here the banks would boost the government's coffers with corporation tax (even at 12%, the amounts would be large) and income tax on those bankers' salaries.

We have the space, there are many, many empty corporate offices in Dublin now, we have the telecommunications infrastructure, we have the unemployed college grads,we have frequent flights to NY or anywhere in Europe and Ireland is English-speaking.

It's a no-brainer. I'm sure the Industrial Development Authority is already on the prowl, but if you happen to have the ear of any bankers over there, you might point them in our direction. A hundred thousand welcomes awaits them.