Corporation tax: The myths dispelled!

Ireland’s corporation tax rate of 12.5% is a subsidy worth billions enjoyed by multinationals and Irish big business.  Time again, the capitalist media and political establishment tell us that this is a sacred cow for the Irish economy and must be preserved at all costs.

Ireland’s corporation tax rate of 12.5% is a subsidy worth billions enjoyed by multinationals and Irish big business.  Time again, the capitalist media and political establishment tell us that this is a sacred cow for the Irish economy and must be preserved at all costs.

“Multinationals are a key area of employment in the Irish economy”

Michael Noonan has stated that he would be willing to raise the interest paid on the EU/IMF “bailout” in order that Corporation tax rate not be raised. Here explores some of the myths behind the arguments that are used to keep corporation tax at a pitifully low level.

Out of a workforce of 1.8 million, only 140,000 workers are directly employed by multinationals – this is less than 10% of the total workforce! Many of the inputs (capital, raw materials, machinery) of these companies are brought in from outside of Ireland. This means that their affect on producing indirect employment is quite minimal. In the past number of years, much of the Foreign Direct Investment (FDI) that has come into the Irish economy has come from services rather than manufacturing which are even less likely to produce indirect employment through the creation of spin off industries.

In fact, many multinationals, particularly in the financial sector, nominally have their international base here in order to enjoy a low tax rate. Despite making massive profits by doing so, they create often very few, and in many cases, no jobs in Ireland. This is nothing more than glorified money laundering!

“Keeping corporation tax at low levels will result in investment that will produce economic growth”

Many multinational companies are now choosing to locate in Eastern Europe and China because of lower wages and a lack of workers rights in those countries. In 2009, Dell in Limerick, despite being a highly profitable company and despite Ireland maintaining the 12.5% tax rate, shut down its factory and moved its production to Poland where wages were a third of its Irish workforce.  In fact corporation tax in Poland stands at 19% which illustrates that the low tax on profits is not a panacea to prevent companies from shutting up shop here.

Investment in the Irish economy has fallen by €33 billion in the past three years. This is nothing more than a strike of capital by big business who will only invest if they can make short term profits – this is why the private sector cannot be relied upon to create economic growth or meaningful employment. Each year, multinationals repatriate billions worth of euro in profits that are not re-invested back into the Irish economy.

“Low corporation tax was critical to producing the boom in our economy”

Between 1989 and 2000, FDI in the Irish economy went from €89 million to €25 billion. This obviously played a part in kick starting the boom in our economy. Yet there were several other crucial and more significant factors as to why big business chose to invest in Ireland – the main factor being a skilled, educated and English speaking workforce based in a market of 500 million people, as opposed to low corporation tax. Ultimately, it is the labour of the working class that produces profits not low taxes!

From 2002 onwards, FDI played less and less of a role in producing economic growth. The boom in our economy was increasingly facilitated by domestic factors, mainly the creation of a property bubble and all that came with it – the fact that 25% of the economy were employed through construction, increased revenue for the state from taxes relating to the property market and cheap credit that also stimulated consumer spending.

The limited role played by multinationals meant that they were not able to sustain the growth levels of the boom years when this bubble burst in 2007. Today, many countries in Europe with low corporation tax rates are facing deep economic stagnation.

Like all workers in the Irish economy, unemployment is a real fear for those who work in the multinational sector and the political establishment seek to play on these fears in order for big business to make super profits. Yet the experience of the last three years, and indeed in the years prior to this, shows the inability of the capitalist market to genuinely develop the productive capacity of an economy, both in Ireland and internationally.

Only democratic public ownership and socialist planning of the key sectors of the economy (including multinationals) is capable of harnessing the wealth of society and skills of its workforce to produce sustainable growth and longterm job creation.


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