Dáil Éireann Debate, Tuesday - 17 February 2004
254 Mr. Durkan asked the Minister for Finance if, in view of this country's taxation levels, he has examined the cause or causes of an apparent lack of competitiveness in Ireland's economy when compared with other EU and non-EU states; and if he will make a statement on the matter. [5072/04]
View answerThe recent report of the National Competitiveness Council sets out clearly the reasons why Ireland's competitiveness position has been under pressure. The council's report states that Ireland's tax environment is still attractive compared to international competitors.
Securing the competitiveness which has been so instrumental to our economic development, and thereby safeguarding jobs, is a key priority for this Government. The objective of my recent budget was to secure competitiveness by keeping inflation low. Competition worldwide is exerting downward pressure on prices and incomes. As an open economy we are more exposed than most and we face intensifying competition for international investment and the jobs that go with it. We need to get our costs and prices back into line with our competitor countries.
255 Mr. Durkan asked the Minister for Finance if he has taxation proposals to enhance Ireland's economic competitiveness; and if he will make a statement on the matter. [5073/04]
View answer256 Mr. Durkan asked the Minister for Finance the extent to which he can address the issue of economic competitiveness through the taxation system; and if he will make a statement on the matter. [5074/04]
View answer257 Mr. Durkan asked the Minister for Finance if he has examined from a taxation point of view the goods and services which appear to contribute to a lack of competitiveness in the economy; the action he proposes to take to address the issue; and if he will make a statement on the matter. [5076/04]
View answerI propose to take Questions Nos. 255 to 257, inclusive, together.
Taxation is only one contributing factor in our economic competitiveness. Other factors include, for example, economic and technological infrastructure, education and skills levels, the level of entrepreneurship and enterprise, and our ability to be innovative and creative. At the same time, levels of direct and indirect taxation impact directly on our competitiveness.
Since first coming to office in 1997, the Government's taxation policy has been to keep down the levels of personal and business taxation in order to strengthen and maintain the competitive position of the Irish economy. The strategy is outlined in An Agreed Programme for Government and is underpinned generally by the provisions of the Sustaining Progress agreement.
To this end we have lowered our corporation tax rates to a level where the most recent report of the Competitiveness Council, the Competitiveness Challenge 2003, published in November 2003 indicated that, in a selection of 16 comparator countries, Ireland has the most competitive rate of corporate taxation. It is also interesting to note that the same report indicated that among the same 16 countries, Ireland has the second lightest burden of regulation on international firms, second only to Finland.
In addition, since 1997 progress has been made in reducing marginal and average personal income tax rates. Both the standard and top rates of personal taxation have been reduced by 6 percentage points each since 1997. They stand currently at 20% and 42%, respectively. The standard rate bands have also been widened considerably. As a result, average tax rates have been reduced at all income levels. The most recent data available from the OECD in its publication Taxing Wages relating to the year 2002, indicates that, for a single person on the average production wage, Ireland has the lowest tax wedge in the EU; the EU average tax wedge is 40.5% while the figure for Ireland is 24%. Overall, therefore, we have made significant progress over the last seven years or so in improving the impact of taxation on competitiveness.
There is a need to keep our tax provisions under review from a competitiveness perspective. Budget 2004 provided for a 20% tax credit against corporation tax which will be available to companies for qualifying research and development expenditure above a certain baseline. This new credit will assist the enterprise sector to make a decisive transition from high-volume, lower-value activity to high-value, knowledge-intensive activity. It will also complement the various direct research and development grant supports which are also available through various agencies of the State.
In budget 2004, I also announced proposals to encourage companies to locate their regional headquarter and holding companies in Ireland. The Finance Bill 2004 provides for an exemption from tax on gains on the disposal of a shareholding in a subsidiary, whether Irish or foreign, and makes a number of related changes to the scope of our provisions for relief against foreign tax in respect of dividend income paid to parent companies. This measure will help to ensure that Ireland remains competitive and that we can maintain and attract high quality investment projects to Ireland leading to additional future employment opportunities.
In relation to taxation and its impact on the price of goods and services, this impact is also considered as part of the annual budgetary decisions on VAT and excises.
Going forward, the Government are committed to ensuring that our taxation policy remains consistent with the key priority of maintaining competitiveness so as to sustain economic growth and maintain high levels of employment.
258 Mr. Durkan asked the Minister for Finance the extent to which budgetary levies imposed by his Department impact negatively on the consumer; and if he will make a statement on the matter. [5078/04]
View answerIn this year's budget the goal of keeping inflation low took precedence and I made only limited changes to indirect taxes and excises. The effect of the indirect tax and excise changes will add less than 0.4% to the consumer price index. These changes will bring in €243 million in additional revenue which is needed to fund public services.
Our rate of inflation moderated significantly over the course of 2003 and continues to do so. Inflation in January this year fell to 1.8%, its lowest level since October 1999. HICP inflation, the standardised measure for the EU, fell to 2.3% in January, its smallest differential with the euro area average since the beginning of monetary union.
