Irish tax haven under threat – break with this failed model

By Manus Lenihan

For decades Irish economic policy has been based on low tax for multinational corporations. The model came into being in the 1950s due to the historic weakness of Irish capitalism and in turn its inability to develop a strong manufacturing base and economy. It needed foreign capital to do so, and in playing a subservient role it hoped it could profit through focusing in on sectors such as housing and construction. But now the days of this low tax regime are potentially numbered.

A rigged economy

Along with the 12.5% corporate tax rate, the Irish ruling class boast of a wide range of little deals, loopholes and complex business structures. This has led to grotesque results like the Apple Tax scandal and the ‘double Irish.’ Meanwhile these companies send £8 in profit out of the country for every £1 they pay in wages (‘The Missing Profits of Nations’ Report, 2018).

For several years, more powerful capitalist governments have been sore about the fact that they are missing out on revenue thanks to tax havens like Ireland. The economic crisis accompanying the pandemic has made the issue more urgent. The G7, a group of some of the most powerful capitalist countries which met in England last week, has agreed to two proposals:

  • A minimum international corporate tax rate, probably of around 15%.
  • For companies to pay more tax in the countries where they sell their products (such as the US) and less in the countries where they are headquartered (such as Ireland).

The Department of Finance estimates that the second point alone would cost the Irish state over €2 billion a year.

Deal or no deal

Change is coming, but it’s not clear what the new regime will look like. The US government are talking about a 21% corporate tax rate. That could mean a corporation headquartered in Ireland paying 12.5% here and a further 8.5% top-up back in the US. International bodies such as the EU and the OECD will hammer out deals over the next year or two. The outcome is likely to be some kind of fudge, as hypocritical politicians will try to poach taxes from places like Ireland while being careful not to upset their own low-tax regimes (for example, the special deals enjoyed by the City of London). But if all the horse-trading drags on too long, each country may just take unilateral action, leading to a chaotic situation.

For years Irish politicians and media commentators have insisted that if corporation tax was raised (as the Socialist Party has called for, along with abolishing all tax loopholes for big business) the multinationals would pack up and leave in the morning. Now that the same demand is coming from powerful governments like the UK, the US, Germany and France, the Irish ruling class have changed their tune. Instead of scaremongering there’s a meek acceptance.

‘Possession is nine-tenths of the law,’ says Danny McCoy from the bosses’ group IBEC (Cliff Taylor, Irish Times, July 12), meaning that if a company is embedded here it will take a lot more than a tax hike to make them leave. This is partly true. But it’s putting a brave face on things, to say the least. In the medium and long term there needs to be a Plan B as new investment slowly dries up.

Fear for the future

Workers in sectors reliant on FDI will have concerns about their future. When Dell quit Limerick in 2009, they left behind 1,900 unemployed people. If that kind of thing happens again, then we need to have an urgent debate about an alternative economic model. Of course, all job losses must be opposed and cannot be accepted. The state must step in and seize the assets and resources of job shedding companies and ensure they are utilised to maintain employment as well to develop an economy based on need not profit.

The fact is that the Irish state’s tax haven model has utterly failed to meet our needs, but then again it was never designed to do so. Just look at the chronic housing crisis, our underfunded health service and education system, as well as the lack of free or affordable childcare. Despite economic growth prior to the pandemic, we have been kept on rations while multinationals have made a killing by paying little, or in some cases, no tax.

The system change we need

Socialists will make the case for an economy designed to serve the interests of the working-class majority, not the super-rich and private profit, including the development of publically owned and eco-friendly industries within this country, linked to a struggle for international socialist change. To do this we must break with a capitalist economic sysytem, where wealth, industry and resources are privately owned and controlled by a tiny few. We need a democratically planned economy where its key dominant sectors are in public ownership and geared towards investment in our public services, public homes on public land, a viable and environmentally sustainable manufacturing base, renewable energy, and free public transport.

There has been a consistent refrain from media commentators in the last year or two worrying that, with economic problems looming, the public are showing no appetite for austerity. The pundits are dead right to be worried. Workers will not accept having their futures sacrificed on the altars of ‘stability’ and ‘competitiveness’ for the second time in a generation. In the ensuing struggles many could be won to the cause of a more sustainable and equitable socialist economic model.