Vol. 481 No. 2
9 Mr. Ferris asked the Minister for Finance whether it is the official Government position that the 10 per cent rate of corporation tax which expires in the year 2010 will be replaced by a universal corporation tax which will apply to all companies and will apply at the level of 15 per cent on traded profits and 25 per cent on passive income and that this regime would prevail until the year 2025; and if he will make a statement on the matter. [15717/97]
While the Government has not yet taken a decision on corporation tax I can confirm it is our intention to introduce a single low rate of corporation tax for trading profits with a higher rate of tax for non-trading profits. This will be phased in over the coming years and will eventually replace the current regime. The details of the new corporation tax regime will be decided on by the Government in due course and will be announced in the forthcoming budget.
Do I take it the existing Government decision has not been formally reversed? That was taken by the previous Administration and was communicated to the European Commission and, through the IDA, to foreign direct investment companies. Is that still the official position until such time as this Administration may make changes?
The Deputy is correct.
Will the Minister indicate why there has been a delay, given the impact it may have on international investment here? Is it because, as reported, the deputy leader of Fianna Fáil and Minister for Public Enterprise advocates rates lower than 15 per cent on traded profits and 25 per cent on other income, as decided by the previous Government? Is that debate still live?
The position is as decided by the previous Government until the current Administration takes a decision on it. I see no difficulty with this because the outgoing Administration decided to establish a low single rate of 12.5 per cent on traded income and 25 per cent on non-traded income. That remains the official Government position and An Action Programme for the Millennium, agreed between Fianna Fáil and the Progressive Democrats, commits us to establishing a single, low rate. There is no difficulty with the decision made by the outgoing Administration but there is a slight difference between our preferred rate of 10 per cent and the previous Government's rate of 12.5 per cent. The position remains as it was and the IDA and international investors know that. We will consider this matter before budget day, 3 December, and any changes will be announced then. The rate will certainly not be higher than that announced by the outgoing Administration. Those policy decisions were brought to the attention of the Commission by the previous Minister for Finance and that remains the current Government's position.
Does the Minister not agree that it has been a central, effective and successful instrument of Government policy through successive Administrations that the rate of corporation tax has remained fixed and was not subject to variation from year to year? If he accepts that, does he agree that any uncertainty surrounding the position after 2010 is detrimental to the attractiveness of Ireland as a location for foreign investment? Will he therefore confirm that the position as published with regard to the end rates will not be changed, given that the manner in which we arrive at those rates is subject to an announcement which he will make in this year's budget?
Certitude on this matter has been an outstanding feature of the success of the Irish economy in recent years and that will continue to be the position. The policy proposals initiated by the previous Administration after considerable study remain the position as of today. On budget day I will give a clear indication of how I intend to progress to the lower single rate. There will be no change in the overall policy proposal outlined by Deputy Quinn when he was Minister for Finance.
I welcome the Minister's commitment to policy certitude in the corporation tax regime but is he not undermining that certitude by deferring the announcement of a decision until budget day? There is uncertainty at present and his reply has increased it. There is no fiscal consequence in making an announcement of this matter in advance of the budget particularly if, as
I gather from his reply, there is no active reconsideration of the decisions taken by people on this side of the House when in Government. Will the Minister make a statement of intent on this matter in advance of the budget, to remove the lack of certitude which now exists?
There is no lack of certitude. The only minor difference is that the joint programme for Government referred to a rate of 10 per cent whereas the outgoing Administration mentioned a rate of 12.5 per cent.
That is a huge difference.
The difference should therefore be of benefit to incoming investors. There is no other difference between the proposals of the previous Administration and of this Government. Everything else will remain as it was.
Does the Minister agree there must be all-party support in the House on this issue if we are to have the long-term certitude necessary? Does he agree that he should consult the Opposition on this matter before any announcement is made, to ensure those parties are as committed to the policy as his Government?
The only point of contention relates to the commitment in the joint programme to a 10 per cent rate instead of the 12.5 per cent rate as announced by Deputy Quinn when Minister for Finance. That does not lead to uncertainty in the marketplace.
Does the Minister accept, when talking about the corporation profits tax regime, the difference between 10 per cent and 12.5 per cent is not a minor matter? Without going into detail, is he saying the Government does not accept the considerations that caused the previous Government to make the decision to change to a single lower rate of 12.5 per cent? I am referring to the European considerations.
The cost difference between 10 per cent and 12.5 per cent would be £225 million. A reduction to 10 per cent would mean a loss of £625 million and to 12.5 per cent, £400 million. That is the difference in scale over the longer period.
With existing corporation tax?
Yes. It is not as significant as one would imagine. I take into account Deputy Rabbitte's point about the European dimension, but there is no uncertainty as to the Government's proposals. The only minor point of difference is that we advocated in our programme a 10 per cent rate whereas the outgoing Administration decided on a 12.5 per cent rate. That is the only point of dispute and that does not lead to uncertainty in the marketplace.
It does.
Has the Minister raised with the Commission in Brussels that the decision of the previous Government to pitch the rate at 12.5 per cent may be changed in the budget to reduce the rate to 10 per cent? He is doubtless aware he can proceed to a 10 per cent rate only with the compliance of the European Commission.
I have not raised the matter with the European Commission because the Government has not yet decided what will be our single rate. As the Deputy and previous Ministers for Finance will be aware, the taxation regime has come under considerable scrutiny in recent years by the Commission and other countries. The Government's position is as outlined by the previous Administration. The only possible bone of contention relates to the fact that the Government may decide on a 10 per cent single rate while the outgoing Administration, after due consideration of a number of different rates, decided on a 12.5 per cent rate.
In view of the extraordinary hostility, of which the Minister must be aware, in the European Commission, particularly among the Monti committee, to competitive tax rates between member states of the European Union, will the Minister accept the strongest card of this Administration is the all-party support, to which Deputy Mitchell referred, for the existing Government decision which will not be revisited other than in regard to the form and speed with which the single integrated rate of 12.5 per cent will be reached? The Minister is weakening his negotiating position with Commissioner Monti and the ECOFIN Council and creating considerable uncertainty with the IDA and foreign investment, particularly with those already located here — I am speaking in particular about the pharmaceutical industry — who are contemplating substantial capital investment programmes.
I reject there is uncertainty among foreign industries here. There was some uncertainty in the period leading up to the time the previous Administration made its decisions on a single rate. There was considerable lobbying by the IDA, IBEC and individual foreign institutions to have the matter clarified. The outgoing Administration clarified the matter and that remains the position today. I would welcome all-party support. The taxation rate is a matter of considerable debate within the Commission and among our partners in Europe.
If the parties in Government agree to a 10 per cent rate, does the Minister propose to go to Europe with the matter? Is he aware that is unlikely to meet with approval in Europe? Why, therefore, is he continuing to hold out the prospect that a retention of the 10 per cent rate is possible?
He might lose the 12.5 per cent rate by shifting feet.
Precisely. This is a very serious matter and the Minister ought to clarify the position and be definite about it.
I am as definite and positive as I can be. I have set out the proposals in the Fianna Fáil programme and referred to the decision by the outgoing Administration. The Government will decide its course of action in the future and I will announce it on budget day.
There will be two more months of uncertainty.
Written Answers follow Adjournment Debate.
