It doesn't sound like negotiation to me, more like a thinly veiled threat!
Merkel's threat to Ireland - drop the Corporation Tax rate or no deal
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It doesn't sound like negotiation to me, more like a thinly veiled threat!
I'm not as overly concerned about this as the media seem to be. It's good politics for everyone, Enda looks tough as do his opposit numbers.
Behind the leaders though the finance ministers know the true picture. That the initially agreed deal (when it was just to bail out Greece) is far to punative and will not facilitate economic recovery and as such is bad overall for Europe. So their only choice is to make a new deal. But that requires the usual agreement from the member states and the leaders, so some are taking the opportunity to gain some political points in their own countries.
As pointed out, Merkel (someone who has done a great job) is now struggling with support in Germany and Germany is angry. Sarkozy wants to up France's Corporation Tax, but there's no way that'll fly without cancelling out the impact and doing their best to get Ireland also increase its rate.
But the numbers are the numbers. The low rate here generates a huge amount of revenue, if the rate goes up, the tax intake will decrease, not increase and that will mean a worse picture for Ireland and for Europe.
I feel the confidence in saying the Corporation Tax is not negotiable is from a fairly clear off the record statement that it won't be touched once we get passed this current public chest puffing exercise by France and Germany. Many more countries other than Ireland have significant vested interests in keep Europe out of tax affairs, some are not too far away from needing economic support themselves and others know that kind of interference wouldn't wash with the public.
However, I've been wrong in the past, so by Friday we'll probably end up with a 50% Corporation Tax.
Behind the leaders though the finance ministers know the true picture. That the initially agreed deal (when it was just to bail out Greece) is far to punative and will not facilitate economic recovery and as such is bad overall for Europe. So their only choice is to make a new deal. But that requires the usual agreement from the member states and the leaders, so some are taking the opportunity to gain some political points in their own countries.
As pointed out, Merkel (someone who has done a great job) is now struggling with support in Germany and Germany is angry. Sarkozy wants to up France's Corporation Tax, but there's no way that'll fly without cancelling out the impact and doing their best to get Ireland also increase its rate.
But the numbers are the numbers. The low rate here generates a huge amount of revenue, if the rate goes up, the tax intake will decrease, not increase and that will mean a worse picture for Ireland and for Europe.
I feel the confidence in saying the Corporation Tax is not negotiable is from a fairly clear off the record statement that it won't be touched once we get passed this current public chest puffing exercise by France and Germany. Many more countries other than Ireland have significant vested interests in keep Europe out of tax affairs, some are not too far away from needing economic support themselves and others know that kind of interference wouldn't wash with the public.
However, I've been wrong in the past, so by Friday we'll probably end up with a 50% Corporation Tax.
Corporation tax in Germany is 15%. There is then a municipal tax rate of 14%-17% and a solidarity levy of 5.5%.
A business property tax is also levied at 0.35% of the taxable value of the property.
Does anyone have information on that the effective tax rate is for large businesses in Germany? I know that the effective headline tax rate is between 30% - 33% but what exemptions are available?
We should be telling the Germans that their state corporation tax rate is only 2.5% higher than ours and we’ll meet them half way, i.e. we’ll increase ours to 13.25% if they lower theirs to 13.25%. What local taxes are levied is no business of central government, especially in a federal state like Germany.
We should also remind them that their current economic strength is in no small part due to the Euro, just as our woes are in no small part due to it.
Germany suffered under a strong currency for decades. The Euro gave them a weaker currency but allowed them to maintain low bond rates; the best of both worlds. They conveniently ignore that now.
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A business property tax is also levied at 0.35% of the taxable value of the property.
Does anyone have information on that the effective tax rate is for large businesses in Germany? I know that the effective headline tax rate is between 30% - 33% but what exemptions are available?
We should be telling the Germans that their state corporation tax rate is only 2.5% higher than ours and we’ll meet them half way, i.e. we’ll increase ours to 13.25% if they lower theirs to 13.25%. What local taxes are levied is no business of central government, especially in a federal state like Germany.
We should also remind them that their current economic strength is in no small part due to the Euro, just as our woes are in no small part due to it.
Germany suffered under a strong currency for decades. The Euro gave them a weaker currency but allowed them to maintain low bond rates; the best of both worlds. They conveniently ignore that now.
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Purple, I started doing a bit of research into this last weekend, but haven't got very far yet. So far my findings are that the German corporation tax system is ridiculously complex, not just because of taxes paid at federal and state level, but more so because of what you have already hinted at, i.e. there is an corporate income tax, solidarity tax and something called a Körperschaftsteuer which is probably the most complex as there are too many concessions to count.
This complexity of the tax system for private firms has been under scrutiny for many years now, and it eventually resulted in the corporation tax reform (Unternehmensteuerreform 2008). On numerous occasions I have heard foreign business owners who are based in Ireland talk not only of the low rate, but equally as important the simplicity of the corporate tax system. Purple, you can probably say more about this, but if I am not mistaken, in Ireland you take your revenue, subtract your allowable businesses expenses and if there is a profit you pay 12.5% tax on that profit. I can tell you that the process in Germany is infinitely more complex.
Regarding some information about effective rates of taxation I found this map on the German wiki: http://de.wikipedia.org/w/index.php..._Switzerland.png&filetimestamp=20090424105915
It is based on information from this paper: [broken link removed]
Haven't had time to read it yet, but there seems to be quite a bit of information in there.
I firmly believe that Merkel's attack on the "unfairness" of the Irish corporation tax is a distraction from (a) the unpopularity of the bailout in the first place and (b) the fact that it took 2 years to introduce the above mentioned reform bill, which is not new legislation, but merely a bill that says that something will be done. And since 2008 very little has actually happened in order to reduce complexity, there is still a lot of talk, even though the two most pro-business parties are in government. But I don't think German businesses owners are paying too much attention to Merkel's comments as I have not seen any criticism of Irish corporation tax in businesses media in Germany.
While Germany is benefiting from the "weak" Euro in the most recent years, it is not correct to say that Germany suffered under a strong currency; the economic suffering in the last 20 years was due to something else.
In general, a currency's strength or weakness is a reflection of the strength of the underlying economy and credibility of the government and central bank. Now, a country can actively weaken a currency by monetary inflation and deficit spending, but this is something Germany has always been very averse to. Germany's currency was strong because it had a very robust productive economy with a high savings rate and low levels of private and public debt.
Then came reunification and some incredibly bad mistakes were made that resulted in at best 15-20 years stagnation. Two examples were the exchange of Ost Mark to Deutsche Mark and billions sent east for "rebuilding" programs with the money being solely used for welfare programs and debt servicing.
The main reason Germany is doing so well today is because it still has a hugely productive economy with goods that millions of people world wide are willing to pay a premium for. German exports have been constantly growing since about 03/04, even through the period of a very strong Euro ([broken link removed]). A solid economy is all about savings and production, not credit fueled consumption. I live in hope that the political world will wake up to this one day.
Europe showed its true colours after Lisbon 1. We rejected it but various EU officials stated that it would go ahead anyway and the Irish would get another go o give them the answer they wanted.
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alaskaonline
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What else should they have done? Leave the east part of their country in the dump?
Also - same as the tax system in Germany their whole economy is much more complex than people can imagine.Not necessarily. Germany's government is purposely making a lot of things unclear or so complex that it becomes confusing (unemployment situation, social welfare system decreasing businesses etc.). Millions of tax payers in this country make the economy look "good" over there but it's nevertheless a distorted picture.
I agree with Germany being the biggest export country in the world but would you have actual numbers to back up the statement of growth? If you read German papers, they tell a complete different story. Although the export is still there with numbers in the billion - the numbers nevertheless are still decreasing YOY.
Either way, I am appalled by Ms. Merkel's attitude. I lived many years in Germany when not all was rosy and the arrogance the German government portrays now is sickening me. You wouldn't want to read the German newspapers about Ireland. They're absolutely slaughtering us.
We're talking about a country with approx. 81 mill people versus Ireland with approx. 6 mill. I hope Enda works the Irish charm on the Merkel!
Our corp rate advantage may come under attack from closer to home. The Uk are looking to allow Northen Ireland have a lower rate. With the lower wage costs over the border, they would be strong competition for inward investment.
http://www.rte.ie/news/2011/0324/nitax-business.html
http://www.rte.ie/news/2011/0324/nitax-business.html
I started a thread on this in the GFD's but it's probably best to keep it as part of this thread.
This, to me, could be a serious threat to us, even if we leave our rates as is.
I'm not saying that nothing should have been done, but that what was done did not entice the east to catch up with the west. Of course the task at hand was immense, how do you modernise a country of about 20 million people and also change their mind set after 40+ years of communism. It took almost 20 years for it to be realised that you cannot simply upgrade the infrastructure, increase welfare support and then just throw money at the individual states to do as they like.What else should they have done? Leave the east part of their country in the dump?
I'm not sure what you mean by this. I agree that unemployment and social welfare has been quite a messy issue over the last years, but Germany is still producing a huge amount of goods for export.
Yes, exports have been extremely choppy in the last few years, as can be seen in this chart: [broken link removed] (you can change the chart to show data from 1991 to 2010)
I haven't been able to find a chart that shows exports by region, but the German companies that I am invested in all show steadily increasing exports to Asia, but European and American exports are extremely choppy and in some cases declining. One car manufacturer has been doubling annual sales to China every year for the last 4 years and this year China will be a bigger market for the company than Germany. As I already said there is a certain appeal to German products that people who can afford them are willing to pay, and I don't think that will change anytime soon.
I'm also appalled at Merkel, but I don't agree that German papers are slaughtering Ireland. What they are doing is being highly critical of Ireland's policies in the last 10 years and especially during the crisis. The German public and media were very much opposed to a bailout of Greece and Ireland and they are now able to increasingly justify that opposition in light of information coming to the light and ever increasing amounts of money necessary.Either way, I am appalled by Ms. Merkel's attitude. I lived many years in Germany when not all was rosy and the arrogance the German government portrays now is sickening me. You wouldn't want to read the German newspapers about Ireland. They're absolutely slaughtering us.
The one thing the German media is not doing is highlighting the irresponsibility of their own pension companies, who invested money in high risk get rich quick schemes & now wont take responsibility for their investment loses.
I'm a bit concerned about a precedent that the current situation is setting i.e. that if you invest in a high risk enterprise, and lose your money, then the Government will bail you out. Also the precedent that it is not ok to invest in high risk ventures. I'm very dissappointed that our Government is losing the PR war - should have a strategy to let the German people know that risk taking on their behalf is the cause of the Irish problems.
I agree 100%, there is very little, if any coverage of this.
Yes indeed, the moral hazard that has been set is so immense that it dwarfs the implicit guarantees that existed prior to the crisis. German banks lent about €130bn to Irish banks, even in a default situation of 30c on the euro this would be about 2% of German GDP. Not a negligible amount, but its effect are blown out of all proportion.
Personally I do not see all this ending well and another crisis of even greater proportions is inevitable.
Well I don't know where you got that from, but it certainly is not the impression I get from watching German TV or reading their newspapers!
Jim (Switzerland)
I'm sorry but this simply is not correct! By law, German pension funds are required to follow a conservative investment strategy and this is enforced by the regulators via regular monthly and quarterly reporting plus audits of said pensions. And to characterise them as high risk takers is simply wrong!
It is also worth remembering that because Ireland is part of the Euro zone, some pension funds and like institutions are required to hold a certain percentage of their holdings in high grade Irish securities.
The fact is that the Irish government, the banks and the rating agencies held out Irish securities to be of a sufficiently high quality to meet these pension standards. And no one should be surprised that we are now expected to honour our commitments.
If we fail to sort this matter out to the satisfaction of the bond holders, then we can expect that it will be a long time before we will ever be able to go to the market again to finance the Irish economy.
Jim.
The other thing I don't see much mention of is how irrelevant a drop in the rate would be.
The Germans I talk to are angry that they have had to give us so much money. When I point out that it's a loan and that they are making a profit on that loan they are surprised.
This is a very debatable statement. First of all, the Irish state should not be borrowing money to "finance" the economy. Government should not be fiddling with the economy, it should be running its own affairs solely with tax revenue. Debt is what caused the problems, and the lesson should be that a stable and sustainable economy is built on savings and investment rather than credit fueled consumption.
While a default would certainly cause short term problems, the ability to borrow in future will come down to the state of the economy and public finances. If the default results in a manageable debt level and less strain on the productive economy through taxation, then Ireland's ability to borrow would increase. Despite Iceland defaulting and the ongoing legal issues with some creditors Iceland's 10 year yield is a lot lower than Ireland's and the country has been able to borrow internationally.
But even if Ireland were unable to access the credit market for a very long time, this would be a good thing, just like it would be a good thing for a drug addict to not have access to drugs.
The truth is that the German pension funds did, in fact, follow a very risky investment strategy - they gave loads of money to Anglo.
The Irish government does not rate investments and never said that Anglo was a good bet. If fact, they said the opposite - the NDFA recommended AGAINST investing pension money in Anglo.
Any 'good' ratings given to Irish investments were given by non-Irish ratings agencies hired by the Germans et al. Not our fault they hired fools or yes men.
Given the trouble this situation has caused, to be perfectly honest, most Irish people would be very happy if the Germans did not invest in high risk schemes being managed by banks based in Ireland.