Ireland’s austerity: poor pay to keep corporation tax low

The Irish austerity package (confusingly dubbed a ‘recovery plan‘ by the BBC) can only be described as eye watering. But the focus on the poor while omitting any contribution from corporation tax indicates the ideological nature of this latest set of measures.

The Irish government had already announced planned savings of €14.6bn in five separate packages over the last two and a half years but added to this today to the tune of €15bn – around 4% of GDP.

The hardest hit will primarily be those on low and median incomes:

– VAT – a regressive form of taxation – rises by 2%

– the minimum wage is cut by over 10% to €7.65 per hour

– the level at which income tax kicks in will fall from €18,300 to €15,300 a year – dragging 10% of low earners into the tax system

– close to 25,000 public sector jobs will be cut

– there will be €10bn in total of spending cuts including 30% from growth-encouraging investment

It seems hard to comprehend how the Irish government thinks that these measures are consistent with their prediction that GDP will rise by an average of 2.75% from 2011 to 2014. As BBC Newsnight’s Paul Mason points out:

“the markets clearly believe there is little chance of the growth story coming true. Since 2pm the cost of borrowing for Ireland has crept upwards.”

Putting all this aside, Ireland’s 12.5% corporation tax rate will stay exactly where it is in the blind hope that their recovery will be export-led. Don’t forget this is the tax rate – praised as a “shining example” by George Osborne – which helped lure businesses like Shire Pharmaceutical among others across the Irish Sea. Despite being handed an €85bn loan, creditor countries have got no concessions at all on corporation tax. The race to the bottom – which Britain has joined by cutting corporation tax from 28% to 25% in the coming years – will only continue.

Perhaps the only positive from today’s package is the introduction of a “site value tax” on land. Economist Philippe Legrain tweets today that it’s, “a reform the UK and others should emulate”.

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