Joan Burton (Dublin West, Labour)

He was the Minister for Finance in the 1950s, when there was the development of the world famous concept of the Shannon free airport development area and the notion of tax-free zones as a way of developing in countries which otherwise lacked employment specific areas where foreign investment would be attracted and would not be troubled too much by local tax rates because they were exporting the product. In 1981 a 10% rate of corporation tax was introduced for manufacturing. Following European Union approaches on the issue, in 1997 the then Labour Party Minister for Finance, Deputy Ruairí Quinn, introduced a 12.5% corporation tax on trading. This was followed in 1999 when the then Minister, Mr. Charlie McCreevy, confirmed in the Finance Act the negotiation with the EU partners of a 12.5% rate. This was agreed by the EU because there had been a tradition of generating employment in Ireland through export sales relief. In those days, much export sales relief effectively equated to a zero rate of corporation tax. Therefore, the 12.5% rate being introduced effectively brought about a higher rate of tax on foreign multinationals in Ireland while offering a lower rate of tax to companies in Ireland, such as domestic banks.

The critics of the Irish lower corporation tax rate often characterise it as a race to the bottom or fiscal or tax dumping, whereby foreign investment will be attracted to countries with the lowest rates. This is said to represent fiscal dumping by that country against other countries which would otherwise compete more successfully to get that investment. In the way international mobile investment has developed, that is now quite out of date. I understand the grievance many people feel. If an ordinary worker is paying low rate income tax of 20%-41% why can corporation tax not be at the same rate? It might be said looking for that would be a case of cutting one's nose to spite one's face.

The argument for State intervention for a low rate of corporation tax in Ireland is based on two grounds. The first is the market failure which followed the Act of Union when manufacturing stopped here, through to the Great Famine, the land wars and Irish independence, when we could not produce enough employment to keep our people at home and therefore looked for an attractor for foreign direct investment. I say to our European friends that, unfortunately, the same need continues. Irish capital has not generated worldwide firms that maintain their employment in Ireland. Indeed, it exercises an enormous tendency for such firms to disinvest in Ireland and go abroad. A second issue is what economists call asymmetry. The biggest asymmetry for Ireland, I say to our European friends, is that we are a small island out in the Atlantic rather than in the core of countries at the heart of the European Union which share a common mainland and therefore have much lower costs. We need some kind of measure in order to get over our historical difficulties of market failure in regard to capital and because we are a peripheral country. Other such countries require the same consideration. The fact that we have an element of advantage in regard to corporation tax makes the playing pitch more even. I would also point out to our European friends that the fact that Ireland has an attractive corporation tax rate may assist foreign investment in other European countries because foreign corporations - which call themselves global corporations nowadays - rather like that situation.

U2 is a world famous band whose example is one I pose to our European friends. The band had, and has, all the advantages of artist tax relief on its copyright here. However, for organisational purposes the band moved many of its activities to Holland which, on the surface, is a very high-tax country. I pose the U2 conundrum. Why is it more attractive for U2 to move many of its activities to Holland for tax purposes, despite apparently enjoying such enormous advantages in Ireland? These include not only the 12.5% corporate rate but the extraordinarily attractive treatment we have for intellectual and cultural works of art, the band's songs included, which are copyrighted here and sold on. Our foreign friends should consider that.

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