ADDRESS TO THE IRISH TAX INSTITUTE – PASCHAL DONOHOE TD, MINISTER FOR FINANCE AND PUBLIC EXPENDITURE AND REFORM
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Good evening everyone – it is a pleasure to be here.
I would like to thank David Fennell, President of the Irish Tax Institute, for inviting me here this evening to address you as the guest of honour.
I know that the annual ITI dinner is an important occasion.
At an engagement last year I told my audience of a very telling exchange between Michael Faraday, the British scientist, and William Gladstone, who was Chancellor of the Exchequer, at the time the two met.
An audience of the best tax brains in the country might appreciate it also.
Faraday was demonstrating to Gladstone his latest discovery in the field of electromagnetic induction when the elder statesman grew impatient and asked what use all of this new technology was to him.
Faraday, without missing a beat said;
Why, sir, there is every probability that you will be able to tax it.
The response from Mr Gladstone was not recorded, unfortunately.
But tonight is a night for giving those hard working brains a rest, and to catch up and network with colleagues and friends.
I am pleased to say that we continue to make good progress on the public finances.
Taxes are a tangible indicator of the underlying economic performance and they continue to perform well across a broad range of headings.
Last year overall revenues grew by a robust 6 per cent on 2016 and were in line with expectations.
For this year we expect receipts to grow by a similar magnitude to just under €54 billion, some 14 per cent or €6½ billion above our pre-crisis peak level.
As would be expected in an improving economy, expenditure demands exist; however spending is being managed within expectations, and is growing at a lower, more sustainable rate than the tax revenues which help fund these public services and investment.
Other metrics continue to move in the right direction – we are close to achieving a balanced budget which is a significant achievement against the backdrop of our recent fiscal difficulties.
This is reflected in improving market perception of Ireland whereby in recent months Irish Government bonds have been trading at yields in the region of just 50 basis points above equivalent German debt.
However, while our general government debt-to-GDP ratio is now down to about 70 per cent of GDP we need to continue to make progress on reducing our elevated stock of debt to provide ‘shock absorption’ capacity for future challenges which may lie ahead.
The latest data indicate that the economy is continuing to perform strongly.
While the headline GDP growth rate was driven by the multinational sector and in particular exports linked to contract manufacturing, the domestic economy also made a strong positive contribution with modified domestic demand – which adjusts for distortions in the Irish national accounts – up 5.2 per cent on an annual basis.
As of January, unemployment is down to 6.1 per cent, from 7.4 per cent a year earlier.
But while we can be confident, there is no room for complacency in a changing world.
Since taking on the privilege of becoming Ireland’s Minister for Finance, I have emphasised that my priority will be tax certainty.
The 12.5% rate remains a cornerstone of our corporation tax offering and that will not be changing during my term as Minister.
However, there is more to Ireland’s position on corporation tax than a committed defence of our rate.
In recent years we have been on a path of modernising our system to meet the best international standards, while also playing our part in shaping the direction of international policy making.
Ireland has played a full part in early delivery of key OECD BEPS commitments:
• The OECD Global Forum on Transparency and Exchange of Information awarded Ireland the highest possible rating on transparency and exchange of information. Only 22 countries have this rating.
• In keeping with our commitment to transparency, Ireland was among the first countries to implement Country by Country Reporting.
• The Knowledge Development Box was the first OECD-compliant patent box in the world.
• Ireland was among the first countries to sign the OECD BEPS multilateral instrument in June in last year, which makes important reforms to our international network of tax treaties.
• We have eliminated stateless companies and introduced mandatory disclosure of aggressive tax planning.
Where change to our domestic regime has been required, we have taken the necessary decisions, though they were not always easy to take.
Our ability to tackle important challenges in the past stands to us now.
It shows Ireland’s ability to adapt and evolve while retaining the core strengths of our offering.
A SMALL, OPEN ECONOMY
As a small open economy, with important trade relationships both inside and outside the EU, it makes sense for us to work towards global consensus on important issues of tax policy.
This approach has already delivered an unprecedented level of progress under the OECD BEPS process, and Ireland has not been slow to deliver on our international obligations.
Our regime is among the most transparent in the world.
The policy of having a low rate and a broad base is founded on sound economic reasoning.
We expect companies to pay their fair share, and all the evidence and analysis shows that we collect every cent of corporation tax due in this country.
And while corporation tax receipts remain buoyant, I will not get carried away.
Concentration risks remain and I must ensure that we spend today is not just what we expect to collect tomorrow.
CHANGE IN THE INTERNATIONAL ENVIRONMENT
Given the emphasis on stability and certainty, you might expect that a Minister for Finance would be in a position to dust off last year’s ITI speech and repeat the same points.
But as we all know, the international tax environment has never been more changeable.
For many years the prospect of US tax reform was considered a perennial uncertainty.
Even late last year, some people were telling me that it would never happen.
They said that the numbers simply didn’t add up, either in Congress or on the books.
But they did.
But it is my job to ensure that Ireland is ready and positioned to compete whatever the outcome.
I am known for being positive in my outlook but even leaving aside my outlook, every indication is that we remain competitive.
Of course, I am not ignoring the concerns that remain about how the reforms might affect some companies and their future investment decisions.
Nor am I underestimating the very real concerns around WTO compliance and other international obligations.
However, for many years we have argued that companies pay their fair share of tax in Ireland, but that we cannot be held responsible for taxes that are properly due and payable elsewhere.
We have found it hard to get that message through at times and our reputation has suffered – unfairly – as a result.
Now, deemed repatriation means that the United States is calling in its taxes.
Companies will be required to pay hundreds of billions of dollars in US tax liabilities, dating back to 1986.
This is a vindication of what Ireland has been saying for many years.
Though others have called on Ireland to claim these taxes, we have always been clear on what was Irish and what was not.
The global collection of taxes that are not due to us is important.
Reputation is a proxy for certainty: A tax system that meets international standards, while seeing this significant change in global tax collection, is better protected from external pressure for change.
FACING THE CHALLENGES
This matters because those pressures are there.
But this is a shared challenge.
Tax advisors and the professional services industry must also play a part.
It is in your long-term interests that it comes from within the industry, that you make long-term decisions with your clients, conscious of my objectives and the standards that we must maintain.
The price of certainty is legitimacy.
I offer stability to a system I stand over.
This is a game changer.
So I want to be clear.
I see Ireland’s future as a country that competes from a position of legitimacy.
I intend to make durable policy choices that we can sustain and stand over for the longer term.
In the coming years, it will be my job to position Ireland to compete in the next evolution of the international economy, which, in my view, will be digital.
The digital tax debate has brought together many of the most important issues in international tax, such as questions about how value is created, and the underlying tension between residence and source taxation.
I very much welcome the work being done by the OECD in this area and look forward to the forthcoming report on digital taxation in April.
This will provide the blueprint for how we build a global consensus in this area.
At European level, 28 prime ministers, including An Taoiseach, have reached a unanimous view on the need to ensure that companies pay their fair share of taxes, but also on the necessity of a global playing field in this area.
The European Commission will shortly bring forward its proposals, but it will be for the Member States to decide on any course of action.
I will be coming to table looking for the EU to align with the OECD and to ensure European competitiveness.
I expect that a number of my ministerial colleagues share this view.
CONCLUSION – THE COFFEY REPORT
Before I conclude, I would like to thank those who took part in the consultation process on the Coffey review.
I believe that stakeholder engagement is essential if we are to provide certainty about our future direction, both in terms of the choices we make and the timing of changes.
My Department is reviewing the submissions received and reflecting on the contributions made from across a diverse range of stakeholders.
This consultation process was not a once-off exercise, but the beginning of a rolling series of engagements between my Department and stakeholders.
My Department has a good track record in open and engaged policy making, and that approach will continue.
There will be important opportunities between now and the summer to provide feedback to interested parties and for you to provide further input.
As we move forward to determine the policy choices guiding the implementation of those recommendations over the coming period that stakeholder engagement will continue.
I am clear in what I want to achieve, but I hope I have been equally clear in what I expect.
I want a competitive and stable tax system that is above reproach.
I want to take the decisions now and in the coming years that will serve as a platform for the continued evolution of our economic model.
At a time of great change it is easy to lose sight of what is not changing.
Ireland’s constancy on international tax is not just part of our message: it is part of our track record.
Thank you and enjoy your night.