The declaration by the EU Single Market Commissioner, Mr Mario Monti, that the Commission is not, as of now, seeking to harmonise levels of corporation taxation will be greeted with a large measure of relief by the Government. His comments in Brussels last week came just days after Germany's Finance Minister, Mr Oskar Lafontaine, signalled that harmonisation in this area would be a key priority for his country's forthcoming presidency of the EU. Proposals for harmonisation on company taxes were also to the fore at a recent meeting of Socialist Finance Ministers, who see this a means of consolidating the European social model. More ominously, from the Government's perspective, Mr Lafontaine has made a clear linkage between this State's relatively benign corporate tax regime and structural funds Mr Lafontaine said: "It is not acceptable . . . that countries who are net recipients (of EU funding) are operating by tax dumping". This idea of some states operating as "tax oases" does not conform with the notion of EU solidarity, he said. The importance of these developments - even allowing for the soothing comments by Mr Monti - can hardly be exaggerated. This State owes much of its recent economic success to a formidable educational system and to improvements in communications and other infrastructure. But few would dispute the notion that the Republic's relatively low level of corporate tax has been a key building block of our economic success, allowing us to attract record levels of inward investment.
The Government will be concerned that the issue of corporate tax harmonisation has resurfaced. This comes only months after the Tanaiste, Ms Harney, concluded a comprehensive agreement with the Commission amid concerns in Brussels that the Republic's low-tax regime represented an effective state aid to industry. In July, the Government agreed to achieve a corporate tax level of 12.5 per cent by 2003 in return for a deal which allows those companies already benefiting from the low tax rates to retain them for some considerable time to come. In truth, the concerted move by Germany and some other states to harmonise corporation tax is doomed to failure. The Government would veto any proposals of this nature at the Council of Ministers; Britain, which has a deep-seated suspicion of EU "interference " in fiscal matters, could also be expected to exercise its veto power. For all that, the renewed controversy over corporation tax may be a significant straw in the wind. It tends to underline how this State's economic success has generated resentment in other EU capitals. And it demonstrates how the traditionally paternal approach of the bigger EU states to the Republic has given way to a more hard-headed attitude. The Government is poised to win any battle on corporation tax; the hope must be that it can avoid collateral damage to other key Irish interests in Brussels.