Ireland as a country likes to place most of its economic eggs in one basket. We did it spectacularly during the property boom, and now we are over-reliant on foreign direct investment. Our politicians, not least Leo Varadkar, are cutting increasingly lonely and desperate figures on the world stage as they try to protect our low corporate tax rate.
The taoiseach, along with his finance minister Paschal Donohoe, was in Davos last week attending the annual World Economic Forum. Surprisingly, the US president Donald Trump was there, too. Davos is a meeting of the high priests of globalisation, from politics, business, academia and civil society. “Diversity” is its mantra. In truth, it is a very parochial event because almost everyone sings from the same hymnsheet: “Trump is awful and so is Brexit.”
Varadkar and his finance minister believe in globalisation, on the basis that it has been good for Ireland. They’re right. It has helped to bring us jobs and prosperity through free trade and the presence here of high-tech multinationals. But now Ireland is on the horns of a dilemma, because globalisation is starting to pull us in two opposite directions. What are our leaders to do?
On the one side are the multinationals, who are the principal beneficiaries of globalisation. Free trade suits them enormously, because they can move jobs easily from country to country and shop around for the best corporate tax rate. Our regime suits them particularly well.
On the other side are powerful people such as the French president Emmanuel Macron and German chancellor Angela Merkel, in addition to Brussels. They don’t like our corporate tax rate, and would like a global response. They want the world to put some manners on the giant multinational corporations, but know that no single country can do this alone. It will take a concerted international effort.
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For this reason, it is unacceptable in their minds for any nation to offer the low corporate tax available here in Ireland. There has to be a more uniform rate, so that the likes of Apple can’t shop around and can’t move profits and jobs so readily from country to country.
What does Official Ireland, which believes so devoutly in globalisation, do in response to this? We love Apple and its ilk, and we want to please them. But we also love Macron and the European Union, and want to please them. Both Apple and Macron believe in globalisation, but their respective versions are at polar opposites and Ireland is caught in the middle. Ultimately, we can only lose, whichever way it goes.
If Apple and Microsoft and the rest of the multinationals fend off the EU’s attempt to make them pay their fair share of tax, we lose. Why? Because the EU will take a dim view, and our store of goodwill in Brussels, Paris and Berlin will deplete.
However, if the EU were to win and corporate tax rates became more standard throughout the member states, we would also lose because the multinationals would have less reason to stay here. Without the multinationals we could easily become Greece, minus the good weather.
At present, Ireland’s strategy is to side with the multinationals. We need them more than we need Brussels. What we badly need, though, is a plan B. We must ensure over the medium to long term that we become less dependent on the likes of Apple and Google. The alternative, leaving the EU, is unthinkable to us.
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At Davos, Donohoe came under pressure during a debate on taxation from political and intellectual heavyweights such as the Nobel prize-winning economist Joseph Stiglitz and the European economic commissioner Pierre Moscovici. Stiglitz said Ireland was one of the countries leading the “race to the bottom” in global taxation. Donohoe unconvincingly denied this. The finance minister said: “If you look at the OECD’s criteria for a tax haven, Ireland meets none of the criteria.”
Presumably that is true, but it’s a bit like the difference between tax avoidance and tax evasion. What we’re doing is not illegal, but it strikes others as unfair; like a billionaire who becomes a foreign resident so he doesn’t have to pay tax in his home country. The multinationals are like vastly bigger versions of those billionaires, and we are facilitating them. We’re free to do this, but other countries are entitled to object and put pressure on us.
Moscovici is doing exactly that. He warned Ireland at Davos that we could not expect to veto indefinitely attempts in Brussels to harmonise corporate tax rates. “We cannot have one country holding up policies that benefit the entire EU,” warned the commissioner.
In a way, the EU is telling us what Trump is telling the world: no more free rides. Following the Second World War, America was content to tell ruined countries such as Japan and Germany that they could take advantage of its open market while they rebuilt themselves. China climbed on that gravy train as well, taking unfair advantage.
As The Times commented last Thursday: “[China] hacks foreign firms to steal intellectual property, sells into foreign markets below market price to hoover up market share, and subsidises its exports.” Why should America put up with this?
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In a smaller but similar vein, the EU was content to give Ireland a leg-up for many years because we were much poorer than most of western Europe when we joined the EEC in 1973. This eventually included tolerating our low corporate tax rate. But that rate is now coming at the expense of the other member states.
Trump is hated for his America First policy. Ireland and its leaders are among his fiercest critics, but our attacks on the US president are completely hypocritical because our low corporate tax rate basically tells the world: “Screw you.” It pronounces that we don’t care how many jobs other countries lose to us as a result, or how much tax revenue we attract at their expense.
This might even be a defensible policy, as long as we decide it is a policy that suits Ireland regardless of the cost to anyone else. It is, in short, an Ireland First policy. We are far more like Trump than we care to admit.