Open letter to new European overlords

Scorpio

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This came up on the Twitter radar this morning:
And it’s hard to craft a Budget when you’re watched by Olli Rehn: Open Letter to soon-to-be European overlords

Some interesting quotes:
Dear Olli Rehn and colleagues,

Welcome to Ireland. Honestly, we mean that. As you might have noticed, it’s all gone a bit Fawlty Towers here of late. Thanks to the management, things are a right mess and everything they do to fix it only seems to make things worse...
Imagine our surprise, then, when we heard you, Mr. Rehn, say not once but twice that “Ireland will not continue as a low tax country, rather it will become a normal tax country”.
Well, surely you didn’t mean VAT, we said. Ireland’s 21% VAT rate is higher than France’s, Germany’s, the Netherlands’, the UK’s… So, if not indirect taxes, we thought, perhaps you meant income taxes? No, that would be silly, we assured ourselves. Latest OECD figures reveal that Ireland’s all-in marginal rates are among the highest in Europe... Do you mean customs and excises perhaps? Hmmm, it’s unlikely as customs are now controlled by EU policy while Ireland’s excises on alcohol, tobacco and fuel are certainly not low by international standards...
So, here we are 85% of the way into Ireland’s tax base and it doesn’t look like we’ve a problem.
Is corporate tax, which comprises less than 10% of the “normal EU country’s” tax revenues, what all this is about? Are you honestly worried that, by potentially undertaxing companies based here, Ireland is doing itself permanent fiscal harm? Perhaps you might take a look a “Exhibit A” below. Based on OECD figures, it shows the size of government’s corporation tax revenue, relative to the economy as a whole. You’ll see Ireland nestled in the Top Five for governments getting lots and lots of taxation revenues out of companies based here.


Ireland’s low corporate tax rates, highly skilled labour force and ease of doing business made it in 2009 yet again the world’s most successful country at attracting foreign direct investment jobs per capita. Our investment promoters, IDA Ireland, will no doubt tell you that a huge chunk of the time, Ireland is fighting off competition from places like Singapore and Switzerland, so every time Ireland wins, the EU wins...
So no-one in Europe wins if, for reasons of economic illiteracy, Ireland is forced to double its corporate tax rates. Ireland’s government deficit will worsen... The wider Irish economy will lose out... And the EU loses...
I wonder if anyone made this point to Mr Rehn when he was here last week. If we're going to hand over economic sovereignty to someone, it'd be nice to think they're economically literate.
 


roc_

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The point is though that it is very easy for any country to grovel in this way to multinational companies, offering them low low tax rates as incentives to set up. No barriers to entry on that one.

But that engenders a race to the bottom where all lose except the rich multinationals.

Countries should compete on those things which are a challenge to acheive.

Personally, I don't think it's something to hold one's head high about to be the country that brings about this kind of 'race to the bottom'.
 

Scorpio

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The point is though that it is very easy for any country to grovel in this way to multinational companies, offering them low low tax rates as incentives to set up. No barriers to entry on that one.

But that engenders a race to the bottom where all lose except the rich multinationals.

Countries should compete on those things which are a challenge to acheive.

Personally, I don't think it's something to hold one's head high about to be the country that brings about this kind of 'race to the bottom'.
If that were the case, wouldn't we have lost all our FDI to Saudi Arabia or Bangladesh or Cyprus or some other country with lower tax rates? There are many factors to competitiveness, this is an important part of it but not the be-all-and-end-all.

Given that ultimately it's our pension funds that own the multinationals, it's hard to see how we lose by taxing them less. Indeed, you could leave profits completely untouched and still have a fair system, by getting everyone on income tax, through either labour income or capital income. As it is, you just encourage companies to waste resources on accountants and lawyers who try and minimise their bill.
 

ManOfReason

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The point is though that it is very easy for any country to grovel in this way to multinational companies, offering them low low tax rates as incentives to set up. No barriers to entry on that one.

But that engenders a race to the bottom where all lose except the rich multinationals.

Countries should compete on those things which are a challenge to acheive.

Personally, I don't think it's something to hold one's head high about to be the country that brings about this kind of 'race to the bottom'.
Well sorry about you sensitivities but most people would find it is very hard to "hold one's head high" standing in the dole queue for a decade rather than working for the likes of Intel or Google.
 

roc_

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If that were the case, wouldn't we have lost all our FDI to Saudi Arabia or Bangladesh or Cyprus or some other country with lower tax rates? There are many factors to competitiveness, this is an important part of it but not the be-all-and-end-all.

Given that ultimately it's our pension funds that own the multinationals, it's hard to see how we lose by taxing them less. Indeed, you could leave profits completely untouched and still have a fair system, by getting everyone on income tax, through either labour income or capital income. As it is, you just encourage companies to waste resources on accountants and lawyers who try and minimise their bill.
No, we have a workforce who are appropriately educated to work at these kinds of corporations, it is true.

All I am saying is that we think we are so clever offering lower tax to these companies than our European neighbours. What would happen, if these European neighbours said, "alright, two can play at that game - here multinationals, we will match the taxation level of Ireland"... would we then turn around and say, "we will go seven points lower"... at which our European neighbours go, "etc. etc."

I think they are right to try and put a stop to competing for multinationals on this basis and at this level, even though I recognise it would be devastating for our short-term interest.
 

ibis

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So, if not indirect taxes, we thought, perhaps you meant income taxes? No, that would be silly, we assured ourselves. Latest OECD figures reveal that Ireland’s all-in marginal rates are among the highest in Europe...
Hm. I have a suspicion that the author of the open letter has used the data for high-income earners, not that for average earners:

http://www.oecd.org/dataoecd/34/21/2576404.xls

For average rather than high earners, our all-in rates are amongst the lowest in Europe. Still, I'm sure that such a fundamental error wouldn't in any sense detract from his analysis.
 

FakeViking

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If we're going to hand over economic sovereignty to someone, it'd be nice to think they're economically literate.
As the saying goes, charity begins at home. Given the gross incompetence of the past 4 MoF's, I don't think we have a right to criticise the Finnish County Councillor.
 

Scorpio

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Hm. I have a suspicion that the author of the open letter has used the data for high-income earners, not that for average earners... For average rather than high earners, our all-in rates are amongst the lowest in Europe. Still, I'm sure that such a fundamental error wouldn't in any sense detract from his analysis.
Did you read the blog post in question and look at the OECD figures linked? The argument is about the marginal rate, not the all-in rate.
For someone earning the average industrial wage, 45% of their next euro goes in income tax. Only Hungary can boast a higher tax regime. Certainly, we can do with fixing our income tax credits – which seem particularly generous to lower earners compared to those elsewhere in Europe – but our income tax rates are, if anything probably too high, I’m sure you’d agree.
The "particularly generous" bit links to this analysis.

Still, as you'd say yourself, I'm sure that such a fundamental error wouldn't in any sense detract from your analysis!
 

Passer-by

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Did you read the blog post in question and look at the OECD figures linked? The argument is about the marginal rate, not the all-in rate.

The "particularly generous" bit links to this analysis.

Still, as you'd say yourself, I'm sure that such a fundamental error wouldn't in any sense detract from your analysis!
Let's see:

The graph below shows the highest “all-in” marginal tax rate in a range of countries (”all-in” includes social insurance/PRSI and any local government taxes). As you can see, Ireland is by no means undertaxing its highest earners. Its top marginal rate is the fifth highest in the eurozone.
You seem to have missed that the figure includes the highest tax rate, not the standard rate.

As for Mr Rehn, if the government spends years boasting about us being a low tax economy and then has a budget crisis, you can hardly blame him for his opinion - he probably was listening to the government when they were shooting their mouths off.
 


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