Skip to main content

Ireland's Prime Minister Brian Cowen pauses during a news conference in Dublin Wednesday, the day on which his government unveiled the deepest sending cuts in the country's history.STR/Reuters

Ireland's austerity package, introduced Wednesday, includes a range of measures designed to shore up the country's finances, trim its massive budget deficit, and create jobs. Public spending is being cut, the minimum wage and social welfare will be trimmed, and civil servants are being laid off.

But for the plan to work, Ireland's economy has to grow, so the government is loath to drive away foreign investors who have been attracted by the country's highly educated work force and low tax regime. That's why it resisted calls from the rest of Europe - particularly Germany, which is carrying the biggest burden of the Irish bailout - for an increase in corporate taxes. Instead, to boost revenue, Ireland's value added tax (VAT) on goods and services will be ratcheted up over a four-year period

CORPORATE TAX RATE

Ireland: 12.5 per cent

Germany: 30 per cent

Ireland's low corporate tax rate, introduced in the 1990s, has been credited with its emergence as a "Celtic tiger" - a healthy, high-growth economy with full employment. How things have changed. Still, the current tax rate is much lower than in the rest of Europe, causing resentment among other countries. One French official described it as "almost predatory." But the Irish government drew a line in the sand, refusing to raise corporate taxes for fear that multinationals such as Microsoft Corp. and Google Inc. would abandon the country. One executive at drug maker Pfizer Inc. said companies would think twice about any new investment in Ireland if the rate was changed.

VAT

Ireland: 21 per cent (moving to 23 per cent)

Germany: 19 per cent

Rather than jacking up corporate taxes, Ireland is shifting a heavier tax burden onto the shoulders of its citizens. The VAT (essentially equivalent to Canada's GST or HST) will rise to 22 per cent from 21 per cent in 2013, with another jump to 23 per cent in 2014. The Irish government says these increases will generate additional tax revenue of €620-million ($836-million). Across Europe, VAT rates range from about 18 per cent to 25 per cent, with most around 20 or 21 per cent, so the changes will put Ireland near the upper end of the spectrum.

Report an editorial error

Report a technical issue

Editorial code of conduct

Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 28/03/24 3:33pm EDT.

SymbolName% changeLast
MSFT-Q
Microsoft Corp
-0.01%421.37
PFE-N
Pfizer Inc
+0.29%27.86

Interact with The Globe