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Thursday, June 15, 2006


The Times has a piece on why ireland's economy is growing. Guess what - they think it is corporation tax too.
the key passage refers to tax. O’Reilly’s view is that the main reason for the Irish economic “miracle” has been the low level of corporate tax in Ireland. He is working to persuade the UK Government to reduce the rate of corporation tax in Northern Ireland to that of the south; that is, from the UK’s 30 per cent to the Republic’s 12.5 per cent. He comments that the Irish miracle is not “because the pubs are great, the golf is great and the climate is, well . . . the fact is, its tax.”

This is, indeed, one of the political truths that politicians ignore at their peril. O’Reilly’s “the fact is, its tax,” is just as valid as Bill Clinton’s “it’s the economy, stupid”. Of course, from the British point of view, there can be no question of cutting the Northern Ireland rate of corporation tax without cutting the UK level. If 12.5 per cent is good for the Republic — and it is — then indeed it would also be good for Northern Ireland. If it would be good for Northern Ireland it would be equally good for England, Wales and Scotland. Not only good, but essential.

Most politicians have little understanding of tax. They think it is easier to tax business because global businesses do not have votes. They do not realise that Ireland has found that lower tax rates produce higher yields. The result is that Conservative tax policies are inadequate, Liberal Democrat policies are self-defeating, and Labour’s are complex and perverse.
Obviously, a 30 per cent tax rate is less attractive to international business than 12.5 per cent. London has therefore become less attractive than Dublin. Like water running downhill, companies will move from London to Dublin, or to other low-tax countries.

There are numerous alternative locations, and it is impossible to prevent this drift abroad.

Also the major cause of wetness is the presence of water.

If the secret of a sound economy is low corporation tax, could you explain why Sweden and other high-tax Scandinavian economies are so successful?

Could it be something to do with good government, excellent education, cultured people and a lively arts scene that attracts and retains intelligent and enterprising people?

And have you noticed that Spain's booming economy has a corporation tax rate of 35%?

Perhaps things aren't just as simple as you (and the Times, which is the mouthpiece of a rather large corporation) make out.
It most definitely could (I am not 100% convinced about the economic value of subsidised arts but Von Mises favoured government sponsored opera so it is certainly arguable). Indeed I have previously argued that if Ireland managed 7% growth then Scotland, with a vastly better scientific, tecnological & entrepreneurial tradition (& nuclear power) could certainly manage 9%.

If however you are trying to say that a lively arts scene produces economic success but low corporation tax has no role then the evidence is against you.

Sweden, despite no minimum wage & education vouchers is now poorer than Ireland & the fastest growing scandanavian state (admittedly from a low base) is Estonia which has adopted low corporation taxes, flat tax & the lot.
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