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Corporate tax crucial to Irish aid

LISBON/DUBLIN — French President Nicolas Sarkozy said on Saturday he expected Ireland to raise its corporate tax rate but an increase would not be a condition for any bailout.

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International Monetary Fund and European Commission officials are in Dublin to discuss financial aid to help Ireland cope with its struggling banks, after concerns about bank liabilities and plans to restructure eurozone debt sent Irish borrowing costs soaring.

Ireland’s low 12.5 per cent corporate tax rate is shaping up as a major bone of contention. Eurozone neighbours want Ireland to raise it as part of any deal, while Dublin argues the low rate is crucial to attracting foreign investment.

Sarkozy, speaking at a news conference in Lisbon on the sidelines of a NATO summit, said he expected Ireland to raise its corporate tax rate.

“It’s obvious that when confronted with a situation like this, there are two levers to use: spending and revenues,” he said. “I cannot imagine that our Irish friends, in full sovereignty, (would not use) this because they have a greater margin for manoeuvre than others, their taxes being lower than others”.

“In the conditions for activating the [bailout] mechanism, there are no fiscal demands,” he added.

The Irish Times newspaper reported that Ireland’s four-year plan to reduce its deficit would be published on Tuesday, before any international financial aid package was ready.

Last month, Ireland doubled to €15 billion ($21 billion) the sum it calculated was needed to bring its deficit under control by 2014. Finance Minister Brian Lenihan said this was designed to ensure Ireland would not need a bailout, but it failed to calm jittery markets.

Ireland’s central bank chief acknowledged this week the country needed a loan running into tens of billions of euros to shore up a banking sector that has grown dependent on ECB funds and seen an exodus of deposits over the past six months. The Irish Times said the government — deeply unpopular and hanging on to a tiny parliamentary majority — had pushed forward the publication date for its four-year plan so it could be identified as a programme drawn up by the government rather than one driven by the EU or the IMF.

The newspaper said the plan would be published on Tuesday, citing unnamed senior Irish officials. A government spokesman told Reuters on Saturday that the plan would be published early next week but did not give a date. —