Irelands Fiscal Future is in a Federal Europe of States

Policy analysts opposed to Ireland’s low tax regime and in particular its low rate of corporate taxation are a minority. They are a minority not on the basis of rational argument but by virtue of a general group think that has established in political/policy circles on this issue. Advocates of Ireland low tax regime never have to provide evidence, data or arguments to support their case. It is one of those policies were counter-factual fear stories are used to support the argument i.e. there would be a flight of capital out of the country, exports would suffer, jobs would be lost, investment would collapse. This level of analysis is informing the governments negotiations with the EU (and supported by the entire media establishment) not rational deliberation on the future of tax and spend policy in a Euro-federated region.

There is a strong argument that increasing Ireland’s corporate tax rate in the current economic depression would be too risky a strategy to pursue. So, I will grant that, in this very volatile environment, were gross fixed capital investment has plunged, the state insolvent and levels of unemployment beyond 14 percent, it is perhaps not such a good idea to increase corporate tax. This is a fair and rational argument for the government to use when negotiating with the EU. However, most of the analysis on why Ireland should not budge on its corporate tax rate is not based on this type of argument. It is based on a beggar they neighbour logic of ‘we have national autonomy over our tax base and we shall defend it to the hilt’.

Thus, Irish political and media elites are not just opposed to an increase in corporate tax rates but the very idea of a Euro-federal approach to fiscal policy. This takes expression in their opposition to the ‘Common Consolidated Corporate Tax Base’ (CCTB). There are significant problems with this proposal (it is designed to minimise tax on MNCs generally) but Irelands opposition is a general opposition to tax harmonisation. This is not a sustainable position if Europe is to evolve positively into a polity, i.e. not just negatively as a free neo-liberal market lacking political-democratic institutions (which is the direction it has been on for some years).

At this stage in Ireland’s political-economic development it is obvious that we cannot go it alone as an independent nation or as a tiny globalised economy on the periphery of Europe. All public policies since the late 1980’s have been premised on increasing and facilitating economic openness. Ireland has internalized the global economic paradigm of neo-liberalism and all domestic policy choices have facilitated Irish adaptation to this external constraint. Hence, our status as the poster child of the OECD, IMF, EU Commission  for 15 years. Recognising the global constraints Ireland operates within is not to deny the importance of domestic politics and institutions. Domestic policy decisions still matter. But, generally speaking, no government will adopt policies that restrict FDI or introduce corporate tax rates. There is a consenus amongst Irish political parties and administrative elites that the comparative advantage of our low tax regime is all we have left.

Ireland, in 2007 was the most globalised economy in the world. This increased our vulnerability to economic shocks. We never established the domestic social protection to act as a societal buffer against changes in global capitalism (as other small open economies such as Austria, Sweden, Netherlands and Finland did during the 60’s and 70’s). After Ireland left the UK, Ireland opted to go it alone for a few years. This nationalism, economic and otherwise did not work and would never work given the external changes in the global economy. The decision to enter the EU fundamentally altered our political economic history. We have yet to fully realise this. Culturally, given our long history of emigration (and the fact that we speak english) we are closer to the USA, Australia and the UK but in terms of our existing polity, policies and economy we are embedded in the Euro region.

This tension has yet to be fully analysed. There are simply not enough Irish people to sustain a national approach to future development. We contribute 1 percent of the overall European GDP. We are less than 1.8 million taxpayers (hence, the absolute inability to pay off the private cum public debt of almost €200bn). Ireland’s future is part of an integrated Europe. Some might prefer the integration was with the UK or the USA but that is just fanciful. Most economists dont think about these political issues at all and just assume Ireland is a national corporation linked into global MNC production and supply chains. But, the reality is that we need to integrate further into Europe not the US, UK or global MNC production chains if we are to survive as a tiny populated region on the periphery of Europe.

It is in Ireland’s long-term interest, both economically and politically, to be part of a confederal Euro of states. That is, to receive and contribute, tax and spend and coordinate its labour market and social polices as though it were a region of Europe not a nation state. This does not mean giving up ones ‘Irish’ identity.  One can be from Sardinia and Italy, Catalan and Spain, Rhein Westphalia and Germany. It simply requires recognition that the world is evolving into a series of integrated regions not isolated nation-states or some abstract ‘global cosmopolitan’. The problem for Europe, however, is how to evolve beyond a narrow focus on the single market premised on the free movement of capital. One can advocate European integration whilst recognising the farce of Euro-neoliberalism espoused and institutionalised by the EU Commission and ECB.

Thus, one way to approach the current negotiations over the ECB-IMF interest rate on the financial loan provided to Ireland is to argue that a) it is not in the immediate interest of Ireland and Europe to increase corporate taxes in a context of zero growth and a collapse in gross fixed capital investment but that b) we do accept the need for greater tax harmonisation as a short to medium term objective. The next question is what type of fiscal, labour market and social policy coordination are we talking about. This opens up a debate between the Hayek Euro-Neoliberals (who dominate by virtue of the centre-right dominance across Euro-nation states) and those who advocate a Polayni Euro-socialism.

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3 responses to “Irelands Fiscal Future is in a Federal Europe of States

  1. “We are less than 1.8 million taxpayers…”

    I assume that should read ‘income’ taxpayers unless taxes like VAT are only paid by 1.8million people now.

  2. Fergal Scully

    I agree with a lot of what is said and see this as an inevitable long term outcome but foresee that this aligning of our fiscal and political life with the rest of Europe will also inevitably increase our already peripheral status as a state and capital will naturally gravitate towards the centre of this new superstate.

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