Our relationship with the UK is unique and that is why the UK debate on EU membership matters so much. It is a debate rooted firmly in economics; and it is of such importance to Ireland precisely because of our deep economic ties.
Combined trade between the UK and Ireland supports over 400,000 jobs in our economies. Not only do we have a shared consumer market, the stock of foreign direct investment from the UK to Ireland is worth €34 billion, and from Ireland to the UK the figure is €47 billion. The UK is Ireland’s largest recipient of service exports and about one-third of goods imported by Ireland are from the UK.
The planned British referendum on EU membership could radically alter the relationship we enjoy with our nearest neighbour and our EU partners. We must ensure Irish interests are protected.
How? By collaborating and competing. We need to work with the UK, and like-minded partners in Europe, to ensure that efforts to reform the EU are successful. We need to compete aggressively to ensure the UK does not steal a march to Ireland's disadvantage.
EU members have a shared interest in a more open, more competitive EU, better equipped to face the next wave of global economic challenges.
This year, the world’s emerging markets, from the Asian tiger economies to the growing powerhouses of Latin America, will be responsible for over 50 per cent of global gross domestic product. The EU must renew its priorities to keep pace, and Ireland should be an advocate for change.
Global trade deals
To support growth and job creation, we need much more ambitious reform and investment. We need to agree new trade deals with the US and Japan, and create a single European digital market for the products and services of the future. And we need to make it easier for firms to succeed, by reducing regulation and only introducing laws after robust impact assessment.
A strong, forward-looking and competitive EU, with the UK as a core member, is of course desirable, but not inevitable. While the British political mainstream and the broad business community favour continued EU membership, we in Ireland know very well how unpredictable European referendums can be.
We need an each-way bet, so Irish interests are secure if the UK remains in the EU, or if a new, negotiated UK-EU relationship is forged.
What should we do? The UK is fast becoming a more attractive European investment location, to Ireland’s potential detriment. KPMG research shows that, between 2007 and 2012, the percentage of business leaders ranking Ireland as a top destination for investment dropped from 86 per cent to 56 per cent; the UK rating jumped from 28 per cent to 72 per cent.
While the referendum debate will bring this issue into sharper focus, the time to act is now. We must match and outperform the UK in its efforts to attract investment, and do so without delay.
Unattractive tax rate
A cut to the UK corporate tax rate, along with ambitious new innovation tax incentives, mean the UK has one of the most attractive tax offerings in Europe. In contrast, Ireland's attractiveness has been eroded. At 52 per cent, we have one of the highest marginal tax rates in the OECD, well above the average of 36 per cent. It also kicks in at a much lower income level than in the UK.
Ireland will emerge from the bailout programme into a very different environment than the one that helped us grow. We cannot rely on past successes to secure our future prosperity. We need to improve our tax offering to attract the next wave of investment; we need to make it more attractive to start up a new business and cut our personal income taxes to attract and retain talent.
The UK debate and its drive for investment must be a wake-up call. We want a strong EU, with a strong UK as a member. But if EU relations are to be recast, we must make sure Ireland doesn’t lose out.
The best each-way bet on an in or out vote is by advocating and supporting necessary EU reform, while ensuring we don't fall behind the UK when it comes to attracting investment and selling into UK, European and world markets.
Danny McCoy is chief executive of Ibec