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Ireland’s golden opportunity
When US President Barack Obama and his entourage touches down in Moneygall in Co. Offaly in May, he will be greeted with the sight of a new €7 million Travel Plaza to be named in his honour. The gesture won’t be lost on the President and neither, one would suspect, will the wider significance of what, at its core, is a commercial proposal.
This is what we have come to expect when the President is in town. But in Ireland’s case, it also epitomises our foreign direct investment (FDI) relationship with the US, our single biggest investment customer. What Ireland has consistently done well in this regard is assess the market and deliver the product the customer wants, when it wants it and, most recently in particular, at a price it wants to pay for it. Producing and selling that FDI product is now more important than ever.
When the President meets with representatives of the government during his visit, the advantages that Ireland offers, and has successfully delivered for decades, to the US investor community will form a critical part of the agenda. So too Ireland’s 12.5 per cent corporation tax rate which is central to the attractiveness of Ireland as an FDI location.
Where the challenge lies is in President Obama accepting that, while the 12.5 per cent rate is central, it is neither an unfair nor the only advantage which Ireland offers. Despite the quite cynical and opportunistic approach taken to the issue in certain quarters in Europe in recent months (based, it should be said, on a misguided, baseless and ultimately politically-driven view), the real story is that Ireland continues to offer a successful, sophisticated and respected value proposition to our FDI customers.
Yes, the headline tax rate is central, but that’s not the full story. The headline tax rate attracts, encourages and very often wins the FDI client for Ireland. But that’s not the only reason that overseas companies remain in Ireland for the long term.
We are a small island on the perimeter of Western Europe. We are a small, open economy. We don’t have a tradition of heavy industry or large manufacturing plants on the scale seen in mainland Europe. And yet we are the jurisdiction of choice for multinationals and international companies looking to do business on a pan- European basis. The European home for Google, Microsoft, Intel, HP, Xerox, Cisco, Abbott, Eli Lilly, Warner Chilcott, Johnson & Johnson...the list goes on.
Is that really all down to tax?
Yes, of course. It plays a fundamental role ensuring that Ireland is at the table when decisions are being made as to where to locate.
And yet the irony is that the jurisdictions we compete with often have lower effective tax rates (take Switzerland and Singapore for example).
It’s a much broader value proposition and a mix of geographic location, education, language, culture, creativity, willingness to adapt and, for so long, sheer determination to succeed. These are the factors that make it attractive for US companies to invest here, and that have helped Ireland to consistently punch well above its weight in attracting FDI from US companies.
The hostility towards Ireland in certain European quarters ignores complex economic and historical realities. It also seems to be based on the rather adventurous notion that if our tax rate is increased, FDI will be spread more evenly across Europe, an astonishing proposition, really, given that what we need is a growth in FDI across the eurozone generally not simply some simplistic notion of spreading the existing investment.
The other side of the equation, of course, is the growing notion in the US that what is good for Ireland (or other FDI locations outside of the US) is not good for the US. And of course, this is also flawed. We are not ‘stealing’ American jobs, we are not closing down US factories, we are not unfairly competing with US companies.
This is where Obama has faced a lot of combative debate in the US and an area in which he will be expected to defend the US position on his travels. The challenge for the Irish government will be to hold its own in the debate to sustain Ireland’s value proposition argument.
The fact that this gives us the platform, as part of that argument, to tell the wider European audience in no uncertain terms that we are not for moving on Ireland’s corporate tax rate, makes the opportunity all the more significant.
The government needs to be as forthright as ever at this critical juncture while its best customers look on from the US. The leaders have been very firm on the issue to date. In many ways, it is the classic line in the sand, not even so much on the issue of the tax rate itself but also on the overall message which it sends to our investor customers, including those (and there are many) who do not rely on Ireland’s low corporation tax rate (financial services companies for example).
Given that this is the issue we have consistently said we will not move on, then irrespective of how minimal any move might be, the significance of that move would inevitably be hugely detrimental as a marker for potentially the first sign of water leaking into the hull. Any kind of tinkering with our corporate tax regime without taking that much wider view would be reckless in that sense. And that’s where the challenge lies, even if our European partners don’t seem to realise that any loss on Ireland’s part does not necessarily mean their or Europe’s gain.
It is time to put the shoulder very firmly to the wheel against any suggested increase in the corporate tax rate. Indeed, more than ever before, Ireland needs to preserve and enhance its attractiveness as an FDI location and tax a key driver in that debate to keep Ireland on the radar. With the right efforts, and notwithstanding the state of the domestic Irish economy as well as the global economy, there is no reason to believe that Ireland will not continue to be a leading preferred jurisdiction of choice for the international investor client; 2010 was the best year in seven for job creation, for example.
The numbers don’t lie and the key number is No. 1. When it comes to FDI, that’s where Ireland will always strive to be and quite rightly too, given our track record.
In that context, when President Obama is in town, someone will inevitably ask the question as to whether we can achieve that goal. And the inevitable response will draw shouts of "Yes we can".
When the President leaves the Travel Plaza in Moneygall, the words that we need to have ringing in his ears must be the answer to the far more important question: will we take whatever steps are necessary to achieve that goal?
If the right answer isn’t obvious to the visiting US delegation - and the wider European and worldwide audience - we will have missed a golden opportunity.
This article first appeared in the Sunday Business Post (24 April 2011).