Tuesday, 10 August 2010

Higher Corporation Tax?

An article in the Irish Times discusses the possibility of higher corporation tax. Quite a number of comments below the article too.


Anonymous said...

Salon.com has an interesting progressive
viewpoint on why the usual prescription to load taxes onto the rich and corporations isn't necessarily the best route to funding a sustainable welfare state.

Nat O`Connor said...

Thanks Anonymous,

In fairness, the article is more convincing on not taxing 'the rich' but does not really discuss corporation tax.

But I certainly agree with the broader point it makes that high quality, comprehensive public services (such as Sweden's) will only be possible if everyone makes a significant tax payment towards providing them.

Of course, the converse of that argument for Ireland is that here - unlike the USA being discussed in the article - we already have a high rate of VAT (relative to other EU countries). And thus low income households routinely pay a fifth of their income in tax.

Yet other sectors of the economy pay less tax and the sum total of tax revenue is insufficient. Hence, it is interesting to at least see some public debate on the future of the Corporation Tax sacred cow.

Mack said...

Nat -

Our VAT rate is inline with most other EU countries. It's below Scandinavian levels of 25% (Sweden, Norway, Denmark) which also have less exemptions.

Not sure what the advantage in raising corpo tax rates on companies benefiting from capital investment vis a vis negotiating a lower price in the first place?

Nat O`Connor said...


You are right. We reduced VAT by 0.5 per cent in the last Budget. Ireland's Standard Rate of VAT (21 per cent) is only slightly above the EU average (20.6 per cent), although we have the second highest Reduced Rate at 13.5 per cent.

The latter rate applies to a lot of food and clothing (which is actually good for low income households and may reduce their tax paid to roughly a sixth of their income, if we assume a mix of 21 and 13.5 rates applying).

Source: EU Document on VAT rates

As for Corporation Tax, I am not necessarily advocating raising it; just drawing attention to the rarity of a discussion on this possibility in a mainstream newspaper.

My first priority would be to examine the cost-benefit of all tax breaks usable by companies to reduce the effective level of Corporation Tax they pay to below 12.5 per cent.

Nat O`Connor said...

Above link didn't work.


Antoin@Eire.com said...

1. Nat, your maths is not great here Even if every single service had a vat rate of 21 percent this would not result in 20 percent of household income or close to it. It would be 17.3 percent (1-1/1.21). Foodstuffs are 0 percent, not 13.5 percent. Many services, such as transport, are vat exempt.

2. This article shows me that few people understand the structure of the Irish economy and where exchequer funds actually come from. Please TASC, put together some diagrams to explain where the Irish national tax take comes from, and how it is spent. This would really help inform public debate.

Tom McDonnell said...

Hi antoin@eire.com

I will be putting up some diagrams on this site showing how we spend public money next week.

For a read on where the national tax take comes from see

Nat O`Connor said...


Post in haste, repent at leisure!

In order to get the maths on VAT right this time I have written a short blog post, which you'll see appear on the front page (not enough room in the comments box).

Robert Sweeney said...

My understanding is that not all corporations end up paying tax at 12.5% because of tax various breaks available to them. Joe Durkan of UCD alluded to this on Vincent Browne Tonight a few weeks ago. In a similar vein, I wonder would it be better to apply different rates to different companies, on a case-by-case basis, applying a high rate, for instance, to ones that cater for the domestic market (which tend to be much more immobile - or is this already the case in that such companies are deemed the non-tradeable sector and as such a rate of 25% is applicable?), while applying low rates to ones which have some sort of positive externality. I not sure how easy this would be under EU competition law though. Any thoughts?

Nat O`Connor said...


My understanding was that the original plan with Corporation Tax was to have different rates, but the EU stepped in and insisted on one rate for all companies, in order to avoid protectionism.

Revenue's 2008 Statistical Report has two sections giving more detail about Corporation Tax. Tables CTS2 and CTS3 give some breakdown of the use of various tax reliefs, allowances, etc.