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Source: Professor Ray Kinsella, Economist, UCD Many individuals, who are well disposed towards the EU and its achievements, will be voting ‘No’ in the impending Referendum. They, and I include myself, will vote ‘No’, not out of any anti-European bias, but on an evidence-based appraisal of the Lisbon Treaty. It is a bad Treaty for Ireland for a number of concrete reasons.
The first has to do with the economy. Ireland has benefited from the EU Internal Market and, also, from the Single Currency. There are, of course, negative factors in this regard. For example, the absence of fiscal federalism, which would allow economic ‘shocks’ in the regions to be off-set by increased expenditure from the centre is absent. Small, highly-open economies like Ireland are, therefore, extremely vulnerable to a ‘one size fits all’ macro-economic policy which, inevitably, is substantially aligned with economic developments in the larger countries, such as Germany and France. Ireland has very few policy instruments to enable it to adjust to the kind of shocks we are now experiencing in the form of the current international credit crises. The latest treaty (Lisbon) will not aid this situation and is, in fact, likely to make it worse. 
It should also be said that Ireland has, itself, contributed very substantially to Europe in terms of ceding our extensive fisheries rights and, importantly, in terms of its output of high quality graduates. While the Irish economy has undoubtedly benefited from both EU transfers and also from a low inflation/low interest rate regime, Ireland has also contributed to the development of the European Union. We have been of benefit to Europe and no-one can say that the benefit has been one-way, as the large political parties are claiming. This is quite simply dishonest.
The benefits of the Internal Market, and of the Single Currency are there. They cannot in any way be jeopardised or eroded in any way by a ‘No’ vote in the Lisbon Treaty. To suggest otherwise is to attempt to bully the Irish people into accepting a treaty that the European leadership does not have the courage to present to their people. This is a serious denial of democracy. Unfortunately, it is a democratic deficit to which we are becoming increasingly used in the E.U. states.
The real issue is whether, or not, the Lisbon Treaty of itself will generate additional economic benefits for the Irish economy. There is not a scintilla of robust evidence that this is the case. The Treaty is, essentially a re-sprayed EU Constitution, which was rejected in its original form by a majority of EU citizens. It is not about economics.
There are, however, very clear reasons for believing that a ‘Yes’ vote will have negative effects on the Irish economy, competitiveness, jobs, and living standards. The reasons for this have much, though not everything, to do with Ireland’s Corporate Tax (CT) Rate. It is one of the few policy instruments available to Government to attract, and to anchor, Foreign Direct Investment (FDI) in Ireland.
It is asserted by those who support a ‘Yes’ Vote, that Ireland’s CT Rate will not be impacted. This argument is difficult to sustain. Ireland’s original special 10% CT Rate, endorsed by the EU because of our past developmental status, co-existed with a higher CT Rate for domestic companies. With the termination of the 10% Rate, it was assumed by both the EU and the larger EU Countries less successful at attracting FDI, that Ireland would simply default back to its higher-level CT Rate. In a rare outbreak of forward thinking, and to the chagrin of the dominant countries, Ireland reduced its overall CT Rate to 12.5%.
This still rankles with the French, whose EU Presidency is imminent, and they have made it quite clear that they intend harmonising tax rates. The energetic rebuttals by Irish politicians provide the clearest guide to the fact that this is a real threat. It would be naive in the extreme to anticipate that the dominant countries, whose high and complex corporate tax rules are resulting in the defection of major multi-national companies (many to Ireland) will not find a way to abolish Ireland’s Corporate Tax rate, one of our very few policy instruments which make us attractive to foreign inward investment. Quite apart from realpolitik, there is respectable and authoritative academic research which demonstrates that one simply cannot take seriously the protestations of Governments where their own self-interests are at stake. The larger countries with a vested interest in eliminating Ireland’s favourable CT rate are staying very quiet on this issue, at least until the Referendum is over. We know from leaked memos that this silence is orchestrated.
Ireland’s CT rate as a core element in our competitiveness is particularly relevant given current and prospective international economic developments, including recession in the US, which is our most important source of inward investment and the UK, which is rapidly heading into stagnant inflation, and is our most important trading partner.
The International Monetary Fund has recently stated unequivocally that the financial risks to the global economy, on which Ireland’s living standards are so dependent, have substantially increased since last autumn.
In addition, as the full effects of the international and domestic credit crises begin to make themselves felt, both directly and through second and third order effects, the medium-term outlook for the Irish economy is substantially less robust than at any time in the last 15 years, the era of the so-called “Celtic Tiger”
It is not alone the internationally- traded sector, as well as domestic companies, who will suffer. Government Exchequer receipts are running well below levels of recent years. The impact on the public sector is already beginning to be felt, both in terms of prospective job cuts and also in major cuts in vital services such as healthcare. When these vital services are cut, this is usually particularly ominous!
In these circumstances, the fact that our economic performance may have exceeded that of our EU neighbours will be of little comfort to individuals, families and companies impacted by uncertainty, lower global demand, and a slow-down in the core housing and construction sector. In this regard, while construction will still continue to be important, the IMF have made the point that Irish property is 3 times more over-valued in relation to economic fundamentals than is the case in the United States, where the “sub-prime” mortgage lending crises developed.
It is also important to remember that Ireland’s success in attracting foreign direct investment, in which its corporate tax rate is a factor, is not simply a gain to the Irish economy. There are substantial grounds for arguing that our success benefits the EU as a whole. No doubt, some of the larger countries may feel annoyed, but there is no certainty that were such FDI not attracted to Ireland, that it would automatically divert to other EU regions, the presumption of many European governments. All of the infrastructure-building of the last 15 years, together with our CT Rate, is, ‘trade-creating’, both for Ireland, and for the EU as a whole.
In these circumstances, a failure to vote ‘No’ would almost certainly see Ireland’s present CT Rate harmonised out of existence, with all that this implies for the many thousands of jobs which are already vulnerable because of international uncertainty. We will lose! Many multi-national companies would have less reason to remain in Ireland, if we were to vote ‘Yes’, and thereby copper- fasten for such companies a key element in their overall competitiveness. From Ireland’s point of view, a ‘No’ vote is, by any reasonable assessment, essential to preserve our competitiveness and living standards in a most difficult economic environment. But no political party is saying this.
The Lisbon Treaty is an opaque mess. It is a re-heated Constitution for Europe, already rejected by European citizens and now served-up as a Treaty with a new name and a pretence that it is essential to improve efficiency. While there is no doubt that the efficiency increase is needed, it is difficult to see how this Treaty will provide such.
This means that European citizens will not have the opportunity to vote on what is essentially the same set of institutional proposals. It is not a forward looking Treaty. It also turns its back on Europe’s cultural and spiritual history. There has been no demand for the Treaty by the people of Europe, rather, it was an initiative primarily driven by the German Presidency and of course the unseen and unelected Commission.
A ‘No’ vote would, embarrass the main Irish political parties vis-à-vis other European heads of Government. But it is these same Governments who have denied their own citizens the right to vote on a Treaty that is a mirror image of a Constitution which they have already rejected. Such embarrassment is a small price to pay for simultaneously securing Ireland’s own interests and for defending the democratic rights of European citizens to vote on how the EU should develop.
Professor Ray Kinsella, Economist,
University College Dublin.
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