Taoiseach Brian Cowen today rejected Fine Gael claims that the proposal by the European Commission for more coordination of national budgets threatens Ireland’s low corporation tax rate.
The Fine Gael deputy leader and finance spokesman Richard Bruton said yesterday the EC proposals would give the commission a final veto over Irish budgets and could lead to tax harmonisation, which could jeopardise Ireland’s corporation tax rate. At 12.5 per cent, Ireland's rate is about half the European Union average.
"The proposal coming from the commission is not, never has been, and never will be a threat to our corporation tax rate," Mr Cowen said told journalists yesterday.
He said that what was involved in the proposal was a peer review process within the euro area to make sure countries did not find themselves in the position that some had done recently when weaknesses were identified and the currency came under attack.
The Taoiseach said the only change being proposed was that there would be greater consultation in the future to protect the economies in the euro zone. He said it was unfortunate that the Opposition had sought to create the impression that Ireland's corporation tax was up for review and he reassured business leaders that there was no question of that happening.
Last night, Minister for Finance Brian Lenihan described Mr Bruton’s comments as "reprehensible" and accused Fine Gael of stirring up anti-European sentiment. “As Deputy Bruton knows well, the commission discussion document issued does not even mention tax harmonisation,” said Mr Lenihan.
Under the proposals, the European Commission is seeking to compel euro zone countries to submit draft budgets to Brussels before they are presented in parliament. The plan sets out to tackle excessive government debt by strengthening the Stability and Growth Pact, which governs how the euro zone functions.
EU finance ministers will discuss the commission’s proposals, set out yesterday in an 11-page communication, at their regular meeting next Monday.
The Dáil had to be adjourned for 10 minutes this morning as the Government and the Opposition clashed over the commission's proposals.
Labour party finance spokeswoman Joan Burton demanded to know when the commission's plan would be put before the Dáil.
"I want to know if the Taoiseach and finance minister have made a prior agreement in Brussels before coming to this house to yield to proposals from the commission about the future direction and management of Irish budgets. That is a sovereign issue in this parliament," she said. "Does this parliament decide our budget or is the budget agreed privately in Brussels?"
Tánaiste Mary Coughlan said it was "inappropriate" for anti-European sentiment to be expressed by members of the Opposition at a time when there was a need to show strength in the euro zone. She also said a populist view that our sovereignty is at issue was "completely incorrect."
"A shared interest and an enhanced economic coordination throughout the euro zone is appropriate and is also legislated for in the (Lisbon) Treaty," Ms Coughlan added.
Speaking on RTÉ's Morning Ireland programme today, Mr Bruton repeated his comments about tax harmonisation. He also warned that other member states could possibly pursue their own agendas at the expense of Ireland and that budgetary decisions might be taken without a proper Dáil debate taking place.
"There is a danger for Ireland's ability to develop a proper economic strategy - including its tax policy in a process where Ireland's budget is going to be pre-cleared in Europe, where there will not be a veto by the Irish Government on that pre-clearance, and where there will be penalties attached to that," he said.
"I think it's very important that we defend the need for an entire new budgetary approach for Ireland that commits to a transformation agenda that we haven't seen from this government or from Europe," said Mr Bruton.
On the same programme, Minister for Foreign Affairs Micheál Martin claimed Mr Bruton's comments on the corporate tax rate undermined attempts by the IDA to bring investment to the country.
"The corporate tax rate is a very significant instrument to attract investment into the country and multinationals reading the newspaper headlines and looking in on this will have second thoughts about investing," he said.
Mr Martin said the new proposal was just the beginning of a discussion at European level in terms of better coordination of economic policy amongst member states. "It doesn't mention tax harmonisation and the corporation tax rate is in no way in any danger and we have received categorical reassurances on that as you know from protocols we negotiated in the context of the Lisbon Treaty," he said.
"I know that as a former minister for enterprise that anyone who raises unfounded doubts about the level of our corporation tax or the sustainability of it puts existing jobs and our economy at risk," Mr Martin added.