Stephen Donnelly (Wicklow, Independent)

As this is my first speech in the Chamber, I take this opportunity to thank the people of County Wicklow and east County Carlow for sending me here. I am delighted my first contribution in the House is to represent them on this critical topic.

The majority of Irish people are in favour of maintaining a low corporate tax base. It has been the cornerstone of Irish economic policy for decades and should continue to be so, at least in the short to medium term. Our low corporate tax rate is recognised as a critical component in attracting high levels of foreign direct investment to Ireland, particularly since the early to mid-1990s. Mr. Padraic White, a former IDA director, said that it became the IDA's most distinctive investment incentive and over time its most single powerful weapon in the international industrial promotion battle. It works. By 2002, Ireland's per capita foreign direct investment, FDI, was the second highest in the world, second only to Hong Kong.

The tax rate in the mid-1990s was one of a mix of factors which led to Ireland being able to attract such high FDI. We have a very low cost base, a highly educated workforce and had, and still have, a business-friendly environment. Ireland is ranked 9th in the world by the World Bank in terms of ease of doing business. At the time there was still relatively low competition from emerging economies such as India, China, Brazil and so on. Now, we are faced with not one but two critical issues in terms of our corporate tax rate. The tax regime is under pressure from not one but two fronts. The first front is Europe, with France, Germany and other countries applying pressure for tax harmonisation. Owing to the economic mismanagement of the previous Government, these countries now have enormous influence on our fiscal policies. At a time when our national debt is projected to grow to €200 billion in 2014 and as we grow closer to a potential default, their influence on our fiscal policy and their ability to apply pressure in relation to our corporate tax rate will increase.

The second front, not often spoken about, is the US. I was in the US during the Obama campaign. President Obama campaigned hard on shutting down tax loopholes for US multinationals, a live conversation in the United States. While I do not believe this poses an imminent danger for Ireland, it is something of which we need to remain cognisant. This can be done, unlike with the Europeans, where we control our own tax rates by applying the same rules as apply to US citizens who are compelled, if living abroad, to pay the difference between the tax they pay in the country in which they are working and the tax they would pay in the US.

Critically, our corporate tax rate hides the fact that we have become increasingly uncompetitive in an increasingly competitive world. We need to protect the corporate tax rate but we also need to plan beyond it and to address several key issues. Our indigenous industry is not as strong as we would like it to be. In 2003, the enterprise strategy group, an independent group set up by the then Government, concluded:

Ireland's performance was driven primarily by a relatively small number of foreign owned firms who chose Ireland as their base for serving Europe. The effects of these firms on the economy was such that it masked the generally poor performance of the indigenous sector, with the exception of a small number of high performing firms.

Despite common perception and some of the rhetoric, we have an entirely average education system. Most worrying is the recent PISA report from the OECD which showed that we have had the biggest fall in educational standards in the developed world in a decade, which is of huge concern. At third level, we have no university among the top 50 in the world. Trinity College is ranked 76th and UCD is ranked 94th. Switzerland and Hong Kong have two universities in the top 50. We have one business school in the top 100, Smurfit business school which is ranked 78th. Three of Singapore's business schools are in the top 40.

Our businesses may have low tax but they have high business costs. Our energy prices are among the highest in the world and we are stuck with upward only rent reviews. Many councils, including Wicklow County Council, are raising council rates and non-internationally traded costs remain high. In its 2010 national competitiveness report, Forfás states that waste water costs, legal fees, education and health costs are extremely high for businesses in Ireland. Another issue we did not have to face in the 1990s is the huge emerging economies competing directly with us, including India, China and Brazil. Many of the eastern European countries are now capable of providing the same high end services and manufacturing as Ireland. They have world class universities, have moved into areas where Ireland operates and can produce services and manufacturing at a fraction of our costs.

Due to our lack of underlying competitiveness in education, business costs and so forth, if we lose our corporation tax or it begins to move, three things will quickly happen. First, FDI will stop dead. Second, foreign companies located here will begin to move to lower corporate tax bases. Third, many domestic firms will close down, including those serving the multinationals and those who depend on the low corporate tax rate to compete with European and international firms. While it does not seem right that the people of Ireland and the most vulnerable people in our society are being asked to bear the burden of banking incompetence and greed and Government incompetence and it seems reasonable that one could suggest to our corporate sector that it could temporarily contribute through the introduction of a temporary rise in the corporate tax rate by 1% or 2% on the understanding that it was a temporary measure, my experience of working with multinational corporations suggests that they would quickly beginning looking for plan B and that, unfortunately, even a marginal temporary move would send out the wrong signals.

In light of all of this, I call on the Government to act in two areas. First, it must protect the corporation tax rate by strengthening Ireland's current negotiating position with the EU-IMF teams. How do we do this? First, we do not pay back the unguaranteed bonds, which I believe amount to approximately €21 billion or €22 billion. We heard earlier today about appropriate burden sharing of this €22 billion. There is absolutely zero moral or economic argument for the Irish people to pay back unguaranteed bank bonds. The IMF agrees with this as do Nobel economists around the world. The arch-capitalist George Soros is on record as agreeing with it.

Second, we need a large-scale debt for equity swap. Third, we need to see beyond the two fundamental errors of the banks. It is okay for banks to fail. Banks around the world fail all the time. The markets will loan us money not based on what we have done, but on our ability to pay in the future.

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