Batt O'Keeffe (Cork North West, Fianna Fail)

I move amendment No. 1:

To delete all words after "Dáil Éireann" and substitute the following:

"recognises that:

— Ireland, like many other small open peripheral economies, has for many years used its corporate tax policy to encourage economic growth;

— the Irish economy now more than ever has to grow its way out of its present difficulties;

— the 12.5% corporate tax rate will support Irish economic recovery and employment growth by attracting in particular foreign direct investment;

— an increase in the corporate tax rate would reduce foreign direct investment into Ireland and Europe;

— if foreign direct investment was lost to Ireland, much of it would flow out of the European Union altogether to other parts of the world, and would inhibit our capacity to grow during the four year plan period and thus reduce our deficit; and

reasserts its absolute commitment to the maintenance of the 12.5% rate of corporation tax."

I wish to share time with the Minister of State, Deputy Dara Calleary, and the Minister of State, Deputy Martin Mansergh.

I thank the Ceann Comhairle for the opportunity to respond to the motion presented by Fine Gael. Normally, I would not agree with an Opposition motion but on this occasion there is great value in this House sending a united message on the importance of keeping our corporation tax at 12.5%.

While our corporation tax is critical, we must also remember that it is but one element of the investment offering that Ireland presents to global markets. Ireland's value proposition to multinationals is strongly based on what we refer to as the four Ts: track record, talent, technology and, of course, our tax regime. Our reputation for excellence in all of these areas continues to attract a strong flow of companies to Ireland. In particular, all of the multinationals I have met have commended our investment in research, development and innovation. No matter what sectors they are in, they all see the potential benefits. This means the Government's investment strategy for science, technology and innovation is the right one to create high quality jobs and to support economic recovery. Despite the period of global recession over the past two years, Ireland's own value proposition to multinationals operating from Ireland has not changed. In fact, it has been enhanced.

There have been significant improvements in Ireland's competitiveness. Building costs including energy, private rents, office rents, services and construction labour have all become far more competitive and they continue to do so. For investors in Ireland, we now offer a greatly enhanced competitive position. The cost of industrial electricity decreased by 24% between 2008 and 2009. Gas prices decreased by 25.9% in 2009 and benchmark salaries for new employees in Irish companies are down between 5% and 22%. Ireland's track record can be seen in the range and quality of multinational companies, many of which have had operations in Ireland for many years.

It is also reflected in the high level of expansions by these companies and in the fact that 80% of our exports are now from the multinational sector. More than 75 multinationals have chosen to make investments in Ireland so far this year. Of these, 22 are from companies new to Ireland, 28 are expansions or new areas of investment from existing client companies and 25 of the investments are in research and development. They could locate anywhere in the EU but they have chosen Ireland. These investment decisions are a vote of confidence in our ability to deal with our financial problems. It is a vote of confidence in what Ireland has to offer to the international investment community. Most of all, it is a vote of confidence in us as a nation and our people.

Our export performance shows that Ireland's enterprise sector, combining multinational and indigenous companies, is the engine of growth in this country. Irish exports continue to perform very strongly, increasing by a total of 3.5% from quarter one to the end of quarter three of 2010. Given global market conditions, it is fair to state that this is a tremendous performance from our key export sectors. An export-led enterprise policy is a whole of economy strategy. Export-driven growth delivers sustainable economic growth through the creation of a virtuous circle which impacts positively on all of the key drivers generating jobs and growth. The boost in secondary employment and the increased consumer confidence which arises as a result of export-driven growth leads to increased levels of consumer spending in the local economy. Increased export growth leads to sustainable direct job opportunities above those provided by serving the domestic market. Growth in revenue for firms beyond what the domestic economy can provide gives increased opportunities for locally trading businesses, a substantial ripple effect in terms of job creation throughout the entire economy and the enhanced tax yields that can ensue for Government.

An export-focused approach impacts on the local economy in other ways also. For example, because export firms are directly exposed to international competition, innovation and high productivity are essential ingredients for success. In turn, they demand high standards from their suppliers, which impacts positively on Irish-based suppliers. It is in this context that it is important to point out that foreign direct investment into Ireland is now back at investment levels that we have not seen since 2005 and 2006. The combined influence of Ireland's increased competitiveness and the strong value proposition commitment to our 12.5% corporation tax rate and quick and decisive measures taken by the Government to combat the challenging economic situation has resulted in this excellent flow of foreign direct investment despite reputational challenges.

These pre-crisis levels of investment hail from our traditional markets of North America, mainland Europe and the UK as well as new high growth markets. On this point, the IDA recently opened offices in Brazil, India, China, Russia and Singapore in order to increase the flow of investment from these growing markets. Given Ireland's strong and long-standing commitment to the 12.5% rate, any movement away from this rate would have a significant negative effect on existing and potential investments.

The Government's position on our corporate tax regime is unambiguous. This commitment is protected in an EU context by the principle of unanimity in taxation matters and is further enhanced by the insertion of a legal guarantee in the Lisbon treaty. Over the past decade, the Irish Government has pursued a consistent strategy of maintaining a low tax burden on companies so as to support sustainable economic growth and social progress. Ireland maintains a low general corporation tax rate by ensuring a wide tax base. The Irish 12.5% corporate rate is a general rate on trading activity and as such is not focused on any particular segment of Irish industry; there is no distinguishing between small and large enterprises or between enterprises that service the local economy and those which have a multinational focus.

The recent independent Commission on Taxation report reaffirmed that a low and stable corporation tax rate should remain a core aspect of Irish tax policy. This view has also been endorsed by the OECD. Its recent work on tax and growth suggests that high corporate taxes are most harmful for growth, followed by personal income taxes and then consumption taxes. Some countries have high nominal rates of corporation tax but much lower effective rates due to the use of various base-narrowing devices. This is not case in Ireland. Our system is relatively simple. Corporation tax receipts in Ireland represent approximately the average collected by such taxes throughout the OECD. Ireland does not support harmful tax competition. We continue to play our part in the EU code of conduct on harmful tax competition and the OECD forum on harmful tax practices. Ireland is fully in compliance with the code of conduct and OECD processes. It is important also to note that the international community does not regard Ireland as a tax haven. The Irish tax system is fully transparent and fully adheres to international norms. This is evidenced by the large and growing network of tax treaties that Ireland has in place with other countries around the world. Ireland has now signed comprehensive double taxation treaties with a total of 61 countries. Our treaty network is rapidly expanding and now includes agreements with non-EU and non-OECD members. Ireland's tax treaties allow for full exchange of information with tax treaty partner countries. Certainty is a key element desired by investors. High corporate tax rates would change company behaviour by disincentivising activity in Ireland and with such an open economy it would be relatively easy for this change in behaviour to translate into a smaller tax revenue base.

An OECD multi country study found that a 1% increase in the corporate tax rate reduces inward investment by 3.7% on average. In other words, it would only take a 2.5% increase in the rate to decrease Ireland's inward investment by nearly 10%. In addition, internationally traded services are an important part of the economy and are expected to grow further as a smart economy develops. It is likely that companies providing services products are more responsive to tax rates and, therefore, will react more negatively to rate increases than companies in the traditional manufacturing sector. It is likely that if the rate increased, some foreign direct investment would choose to leave Ireland. Ireland competes with Singapore and Switzerland for many of its projects and it is likely that these countries would benefit from any change in Ireland's offering to the international investors. It is important to point out that the countries against which Ireland competes for internationally mobile investment continually improve their tax offerings. Any erosion in Irish tax competitiveness enhances the position of competing non-EU jurisdictions. The OECD has pointed out that raising corporate tax is the most harmful tax on economic growth. It is obvious that an increase in the corporate tax rate is unlikely to increase tax revenue in Ireland. While some may argue that an increase in the rate now could increase revenue in 2011, this would be a short-term increase and over the medium term, revenue would be likely to decrease.

Our 12.5% corporate tax rate is a key economic driver in Ireland's recovery and will enable Ireland to meet its external debt obligations. This is good for Ireland and for the eurozone. The Government has set an ambitious target to create 300,000 jobs over the next five years in our new integrated trade tourism and investment plan. This plan will benefit all sectors of the economy and these are jobs at all skill levels, in all sectors of the economy and in every county. Our strategy includes a target of winning 780 new foreign direct investments over the next five years. Our 12.5% corporation rate is central to our ability to attract these investments to the country.

As Minister for Enterprise, Trade and Innovation, I want to reaffirm Ireland's long-standing and long-term commitment to the 12.5% corporate tax rate, which is and will remain a cornerstone of Irish industrial policy.

See this speech in context