Almost two years ago I wrote a diary called Light at the end of the tunnel? in which I posited the notion that the precipitous decline in Irish GDP and employment levels had halted and that there were some tentative signs of recovery on the horizon. Those green shoots have gradually taken root in the meantime not helped by a very difficult political and economic environment globally and in the Eurozone in particular.
Thus whilst Euro zone unemployment hits another record high, Irish employment has begun to rise, which, combined with net emigration, has begun to make a dent in the unemployment rate which has declined from 14.1 per cent to 13.7 per cent in the first three months of this year. That this should be happening in the context of continuing government austerity, a continuing collapse of the construction industry, and slowing export growth in the face of Eurozone recession is all the more remarkable.
But we should be clear: this is no triumph for “expansionary austerity”. Ireland’s low corporate tax policies have continued to attract almost every major US multinational in the ICT, pharma and finance sectors to set up their European headquarters in Ireland, and to launder their European sales through the Irish corporate tax code. Tax competition seems to be working for Ireland as a recovery strategy, but it is hardly an option for the EU as a whole. Is Irish recovery at the price of contributing to global recession by allowing almost all incremental wealth to be hoovered up virtually tax free by global corporates?
To be fair, the nominal Irish corporate tax rate of 12.5% is close to the effective tax rate, and many countries with much higher nominal rates tax selected global corporations even less. But the real scandal has been the tax avoidance schemes used by some corporates such as the double Irish and Dutch sandwich which enable some corporates to pay almost no tax at all. Strangely, such arrangements, though well known for a considerable time now, seem to attract relatively little political and regulatory attention when compared to the focus on headline rates. Almost no effort has been made to close the tax loopholes in Irish, Dutch and US tax laws which make them possible even though it means that large corporates like Apple, Facebook, Microsoft, Eli Lilly, Pfizer and Google end up paying very little tax in any jurisdiction.
Now why ever could that be?
