Address by Minister of State Roche
Assemblée nationale de France
COMMISSION DES AFFAIRES EUROPÉENNES ET
COMMISSION DES AFFAIRES ÉTRANGÈRES
Paris, 2 February 2011.

M. le President, Members of the Assembly, Mesdames et Messieurs

It is a pleasure to be here this afternoon, and to have the opportunity to exchange views on areas of mutual interest.  The timing is very apt for a meeting between a European Committee and a European Minister: we are between a General Affairs Council and a European Council.  You are no doubt aware that it is a busy time also for politics in Ireland; I’m sure you know that our Dail has been dissolved and a general election will take place in three weeks.  Even – and perhaps especially - in busy times such as these, I think it is important that governments and parliaments get the best information available.  There is much media reporting and comment on issues such as the current economic and financial situation in Ireland, but it is vital that decision-makers such as yourselves hear directly from those involved. 

While I am delighted to discuss any issues which you may wish raise, I wanted - in my initial remarks – to give you my view of Ireland’s economic situation in the context of our common membership of the European Union and the Eurozone. 

As is well known, Ireland’s experience of EU membership has been hugely positive. It changed our country from being (as the French write Michelet put it) une ile derriere une ile, and broadened our horizons politically and psychologically. 

And Ireland’s economic advance and achievements since joining the European project speak for themselves.  In 1973, Irish GDP per capita was just 58% of the European average.  However, over our 37 years of membership, we achieved average GDP growths rate of 4.5%, which has allowed our economy and living standards to converge with the rest of the EU. Our current, very considerable economic and financial challenges must be seen against this background. We have come a long way and we are addressing these challenges from a position of relative strength.   We do so with many positive assets which have been won in recent decades – in other words, assets which we were not so fortunate as to inherit from our history over preceding centuries.

As a small open economy, we are by necessity a trading people – exporting 80% of all the goods and services we produce.   Indeed, Ireland has just been ranked by Ernst and Young as the second most globalised economy in the world.    Being part of the EU single market has been of major benefit to Ireland. Over the last three and a half decades we have managed to diversify our export markets greatly, reducing our dependence on the British market for our exports - from 55% to a more balanced 18%. Over the same period we have increased our exports to the rest of Europe from just 21% to around 45%.

Our EU membership has been one of the key factors in attracting foreign direct investment (FDI) into Ireland: access to the vast Single Market of 500 million people has been vital.  Almost 1000 foreign companies have set up shop in Ireland, and this investment has been responsible for creating huge numbers of jobs.  In absolute terms, we have naturally not been as successful in attracting FDI as France has been, given the advantages conferred on you from history, the large scale of your domestic market, your central geographical location and the many supports offered by your government. It is no surprise that France is perennially in the top three performers in the world in attracting inward investment.

But for our size we in Ireland have done well.

Of course, we have lost investment too over the years, sometimes to lower- cost competitors. That underlines the importance of moving up the value chain, and of innovation in general, a theme our heads of government will address on Friday.

For many years, our corporation tax rates have had a part to play in attracting this investment. But they are only one element in a broader suite of factors which have driven our economic development and attracted investors; a strong culture of entrepreneurship among our people; a political and social consensus that underpins strong State support for enterprise and especially for innovation; the consensus understanding in Ireland that the country has to remain competitive in order to continue to prosper. “Competitiveness” is nowhere a dirty word in Ireland. Our workforce is young, educated, technologically highly qualified, and in particular, it is dynamic and flexible. It is strongly proficient in English and in other languages. In recent years, we have developed better infrastructure and a more competitive cost environment for business.   All of these factors exist, of course, within the context of our EU membership and the enormous benefits which it has brought.

If these factors did not exist, not even a zero rate of Corporation Tax would be sufficient to attract overseas investors to our shores, or to build indigenous investment.

I wanted to say a little more about our corporate tax rates, since this has been the subject of some public comment.

To make clear our own position, I should explain that Ireland will retain its current low corporate tax rate, but we are not in any way unaware of the need to raise revenue given our current budgetary situation.  Our expenditure exceeds our revenue, and we have taken drastic steps to cut spending and increase revenue.  Only last weekend, the Irish parliament passed a Finance Bill which contains some very significant tax increases, across of a range of different tax instruments, which will see tax payments increase substantially as we front-load a budget adjustment of €6 billion in 2011.   We have cut public sector salaries on average by approximately 14%. We are borrowing money against EU and IMF guarantees, but we will repay this money, with interest.  The way Ireland will repay its debts is by trading our way out – exports.  FDI is key to those efforts.  A prosperous trading Ireland that can repay its debts is good for Ireland and good for Europe. There are difficult decisions to be taken but the government –and the Irish public – realise they must be made.  How we manage the mix of different tax rates and tax instruments (personal income tax, VAT,  capital taxes, , Corporation Tax, etc) however is a matter of fine judgement - and a judgement that Ireland must make for itself. 
Of course, these are sovereign choices, but also choices best made - and if ever there was a case for the subsidiarity principle it is this – by the authorities most expert in the particularities of the country concerned – in our case, the Irish government.   Our particular geographic, social, historical and economic circumstances require particular approaches.  We are not on the continent of Europe, we are not a large domestic market, we do not have a decades-long history of heavy manufacturing industry. 

It seems to me that France is particularly well placed to accept our argument that no single one-size-fits-all approach is right for the EU 27 or even the Euro17 in every case.  Whether in agriculture, in culture, in defence, in energy, in labour, we all need to make choices best suited to our individual societies.  Each member State has its distinct advantages and challenges to address.  Of course, there are occasions where action is best taken and in coordination, and where we agree with closer integration - the European Semester is one clear example of this, but there must be a balance.
Without going too much into the details, I think it is also useful if I address one or two other elements of the debate on corporation tax, and specifically the claim that our headline rate of 12.5% is so strikingly different from those of France and many other EU partners that it creates unfair competition.  All of our tax systems are distinct and tailored, and the effective rate in each country is vastly different from the headline rate.  I understand that a draft report from your own Cours des Comptes indicates that the profits of the CAC 40 companies were taxed on average at 8%.  Eurostat figures point out that Ireland’s receipts from corporate tax as a % of GDP – at 2.9% in 2008 – are above the EU average of 2.7%, and the French rate of 2.8%.  But these kinds of comparison have very little persuasive effect, because our tax systems are different and correspond to our own national systems and choices, as they should, rather than lending themselves to simple comparisons between headline rates. 

I should add also that the Corporation Tax rate in Ireland is not designed solely to promote FDI, but also to stimulate growth in the Small and Medium Sized Enterprise Sector, as well as promote innovation across the economy.

Another concern of course is that the FDI which Ireland attracted has been diverted from other EU countries by reason of this corporate tax headline rate.  Again, our analysis of the FDI into Ireland is that our competitors for these investments are primarily not within the EU, but in Asia.  For the most part, this is FDI which would not otherwise have come to Europe.  France, Ireland and other EU members are competing in the global market for FDI, not the Single Market. For the EU, it is not a zero sum game.  These investments are good for Ireland, good for the EU.

A final point, and then I really will have exhausted your patience on tax matters.  There is always the issue of fair implementation, so that taxes rightly payable in one jurisdiction are paid in that place.  We accept that this must be case, and work to ensure it. Ireland has 62 bilateral tax treaties in place, a system of full exchange of tax information, transfer pricing legislation and full compliance with the EU code of Conduct on Harmful Tax practices.  Our headline tax rate also has the advantage of being transparent and simple and certain.

I wanted here to say a word also about the Irish Banking Sector.  We have recognised the problems, and also our responsibility to the Irish people, to the Eurozone and to the EU to address these.  And - in short- the issues are being addressed head-on. Specifically, I would draw to your attention that:
• Loans with a nominal value of over €71 billion have now been transferred from the banks to National Assets Management Agency
• The main banks have increased their levels of core tier 1 capital to 8% in line with requirements set out by the Central Bank.
• The Irish Central Bank - under the terms of the EU/ IMF Programme - will shortly carry out an updated Prudential Capital Assessment Review exercise on the capital position of the banks, based on stringent stress testing and detailed reviews of asset quality and valuation. This exercise will take into account updated assessments of the macroeconomic environment. It will ensure that over the coming years, the banks’ capital ratio do not fall below 10.5%. This is a high standard in international terms and it should give confidence to the market that our banks will be in a strong financial position and allow the banks to attract greater market funding in due course.

As Minister for Europe, I am keenly aware that as Ireland has gained from Europe, so also have we made our contributions as a committed and engaged member of the Union.  Irish governments – and individual Irish officials – have been among the most committed and active Europeans and servants of the institutions at the highest level. Irish Presidencies of the Council of the EU have been universally well regarded, as we have strived to place our domestic priorities behind our duty - as Presidency - to the Union as a whole.   Most recently, in 2004 – and against the odds – the Irish Presidency facilitated consensus agreement among the 27 member States (ten of which had joined the Union only six weeks earlier) on the text of a draft Constitutional Treaty. 

Many of you will I am sure know Pat Cox who had a distinguished career in the European Parliament, including as its President. We have played an active part in every area of European endeavour, from trade to development aid to agriculture to security and defence, often in positions remarkably similar to those of France.  As recently as 2010, 400 Irish soldiers stood shoulder-to-shoulder with French troops in the EU mission to Chad, and an Irish General commanded the EU operation from an EU headquarters here in Mont Valérien in Paris.

Ireland and France go back a long way.  Indeed, Saint Patrick was taught here and the Irish flag is of course inspired by your Republican tricolour.  But our links are also modern and growing.  
Ireland and France have always worked closely together to advance the cause of viable, competitive and safe agriculture and food production in the EU, which today is more important that ever in the context of rising global population, food security and climate change challenges.
We have €8 billion or so in goods trade between us and Ireland is one of your top ten sources of tourism. Today, there are about 9,000 French citizens living and working in Ireland.  Despite our small size, there is impressive Irish investment in France, ranging from heating systems to food to glass manufacturing, green cement products, agricultural engineering and services. We reckon there are about 50 Irish firms investing here in France and these include Jefferson Smurfit, Cement Roadstone Holdings, Glen Dimplex and Elan.  I am told 10,000 people work for Irish companies here in your country.

French companies too have a strong presence in Ireland, winning business in environmental services, insurance, transport equipment, energy, pharmaceuticals, food and fashion to name but a few. Their business is helped to grow by their work in Ireland and their partnerships with Irish companies. Our Embassy here in Paris carried out a study a couple of years back on the extent of research co-operation between France and Ireland, discovering hundreds of academic and business partnerships in this area of the future.

France remains Ireland’s fourth  largest merchandise trading partner.  The balance of trade has tended to be in our favour but still, in the first 10 months of last year, French merchandise exports to Ireland were valued at an impressive €1.5 billion.  This, however, was down from €1.8 billion for the same period in 2009 and it is fair to conclude from this that a prosperous, growing economy in Ireland is of benefit not just to Irish workers but also numerous workers in France.
Ireland is often caricaturised here as a magnet for foreign investment and no more.  A number of French firms do, indeed, have interests in Ireland.  Dublin’s light rail system is operated by Veolia and the trams were built by Alstom.  Often, however, French involvement is by way of acquisitions.  Thus, for example, Pernod Ricard has acquired the whiskey group, Irish Distillers, and BSN has a significant stake in Irish Biscuits. 

When you take all of this together: what could illustrate better the living reality of free movement, interchange and cross-fertilisation, which the Union and its single market have brought about?
M. le Président, members of the National Assembly, Mesdames et Messieurs,
I wanted also to give you my assessment of the steps Ireland is taking to address the current economic crisis.  We have our present fiscal and financial difficulties, which are addressing head on, making our own tough decisions but relying also on the support of the EU and the international community.  We depend on export-led growth to get us through the current crisis, and I am pleased to be able to say that our economy is responding well to this expectation.  FDI will help us reach our target of growth and jobs, a target to which all of us in the EU subscribe.

The economy has stabilised; virtually all analysts expect resumption of positive growth this year and beyond.  Significant competitiveness improvements are underpinning a return to export-led growth. Export growth is robust and is one of the strongest in the EU.  Conditions in the labour market have also stabilised. Tax revenue has stabilised and is ahead of forecasts, discretionary spending has been reduced and the deficit is being reduced.  Indeed, all of the main political parties in Ireland agree on the objective of reducing our deficit to 3% of GDP by 2014, or 2015 if necessary.  The National Recovery Plan allied to the EU/IMF programme provides certainty and enables Ireland to navigate a path to a sustainable economic position.

Of course, it is vital for our return to growth, and for the stability and prosperity of the EU as a whole, that nothing be done which would impede our efforts to encourage the export-led recovery.  For us to take measures – such as corporation tax increases – which would damage our growth prospects would be self-defeating, for us and for Europe as a whole.

Our National Recovery Plan contains measures which will boost our competitiveness, restore order to the public finances and, most importantly, remove barriers to growth.

The European Union and the IMF have committed their institutional funds on the basis of their forecast that Ireland is able to service its debt.  They consider our debt position to be manageable and, to speak in colloquial terms, they have bought into our National Recovery Plan, literally and figuratively.  The challenge we face is to convince the markets and, in order to reduce their perception of risks in the banking sector, the forthcoming Prudential Capital Assessment Review will be more detailed and more intense this year.  We will publish much more detail on the banks this time and the review will be validated by external consultants.

Growth, as I have explained it as the heart of our recovery strategy.  Forecasters may differ on the detail of the projections but no-one is predicting anything but growth for the Irish economy this year and next year.

Recent research by the OECD also points to the importance of low corporate tax rates to encourage growth.  In ranking taxes by their impact on economic growth, corporate tax was found to be most sensitive. Governments seeking additional tax revenues are advised, therefore, to consider increasing all other types of tax before increasing corporate taxes.

The Finance Act adopted last week by the Irish Parliament introduced numerous tax rises and very few Irish people looking at their payslips today would accept the charge that Ireland is a low tax economy.  But we would all agree that setting our own rate of corporation tax is a matter for decision at national level and, indeed, there is a cross-party consensus among all parties in Ireland  - Left, Right and Centre - on keeping our rate at 12.5%.  As you know the European Union is based on a delicate balance between community and national competencies and 1.2 million Irish people endorsed this approach as recently as 2 October 2009 when they voted in favour of the Lisbon Treaty by an overwhelming majority of 67%.Ireland has used its corporate tax strategy since the 1950s to encourage growth. 

M. le President, I know that the economic challenges facing Europe are the key priority for France also at this point, and that collectively we must not miss the opportunity which 2011 provides to make the changes necessary to strengthen our currency and our economies. 

Our Heads of State and Government had been working on this issue, and improved of the economic governance of the EU is already a fact. The European Semester has begun, and work is also underway on the package of six EU legislative acts intended to ensure tighter EU budgetary and macroeconomic policy coordination.  Discussions on new ideas and new ways to defend our economies will continue, informally at Friday’s European Council, but more substantially at the March European Council meeting.  France has always played a leadership role in this discussion, which I welcome.  Of course, we will differ on some of the details and on some of the approaches even if the goal is one we both share.
We must look for new and innovative ideas to address this economic crisis. We must have an open debate.  But when we in Ireland – and perhaps especially someone in my position as Minister for European Affairs – look back at the economic progress that has taken place in Europe over the past 50 years, it is inescapable that the EU and its structures have served us well.  The EU has provided the engine, the chassis and often the driver of our economic development.   In a crisis, such as the one facing us now, we should not reject the arrangements and processes that have served us well and brought us this far, in search of a quick fix; we should work with and through the institutional framework of the EU to address our problems as far as we can.  A rules-based approach, which provides certainty, fairness and predictability, within the EU institutional framework would seem the natural and best choice.

M. le President, I am grateful to your colleagues for the opportunity to address you and to set out my government’s views.  I would be happy to continue this discussion, to hear your views and to respond to any questions your committee may have.
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