French President Nicolas Sarkozy said today he expected Ireland to raise its corporate tax rate but an increase would not be a condition for any bailout.
As International Monetary Fund and European Commission officials resumed their talks in Dublin, Mr Sarkozy: "It's obvious that when confronted with a situation like this, there are two levers to use: spending and revenues.”
Speaking at a news conference in Lisbon on the sidelines of a Nato summit, he said : "I cannot imagine that our Irish friends, in full sovereignty, (would not use) this because they have a greater margin for manoeuvre than others, their taxes being lower than others".
"In the conditions for activating the (bailout) mechanism, there are no fiscal demands," he added.
Chancellor Angela Merkel declined to say whether she believed the tax was in jeopardy if the Government tapped an international bailout fund.
"Every country that's in need of this mechanism can use it. Everything beyond that is the decision of each individual country," she said.
Meanwhile, Sweden said today it would consider a bilateral loan to Ireland if one was requested, prime minister Fredrik Reinfeldt said.
On the question of Ireland's low corporation tax, Mr Reinfeldt said: "It's a decision for the Irish people and government to take."
The European Commission warned last night that the Irish €15 billion four-year economic plan to be released early next week remains subject to its “thorough assessment”.
The European authorities and the IMF are working on the basis that they will receive a request for emergency aid from the Government next week, after the publication of the plan. The application will be considered first by euro zone finance ministers, who are on standby to receive a request from Dublin.
With some high-level commission figures already questioning whether the four-year plan can be realised due to poor growth prospects, the Government is campaigning to avoid being compelled to increase the €15 billion target in talks on the bailout package.
A senior commission official acknowledged extensive European oversight when the plan was in preparation but said the “budgetary impact” of the initiative still had to be examined in detail in Brussels. The plan will be published on Tuesday, senior Irish officials have confirmed.
A separate plan for restructuring the banking sector is also expected to be finalised over the weekend.
The Cabinet will meet tomorrow to sign off on the 160-page document which charts how the State will reduce its outgoings by €15 billion between now and the end of 2014. It follows a marathon eight-hour meeting of Ministers on Thursday at which agreement was reached on the bulk of the final plan.
Government sources said yesterday that the publication of the document had been brought forward so that it could be identified as a plan that originated from the Government, and not from the IMF, the ECB and the European Commission.
“It’s stark. It’s IMF-lite but it’s totally the work of the Government,” said one official.
He conceded, however, that private discussions had taken place for many months between Department of Finance officials and the IMF as well as the more formal talks with the commission. “All of those bodies are well aware of the plan and the budgetary proposals and approve of the idea.”
The plan has gone through approximately eight drafts and gives details of the budgets for each section of each department, what cuts will be made, the yearly targets for reductions and how they will be achieved.
The document also reaffirms the Government commitment to retain the 12.5 per cent corporation tax.
There is now grave concern among multinational companies in Ireland that the 12.5 per cent rate could be changed. A delegation from the American Chamber of Commerce in Ireland met Finance officials yesterday. The chamber was assured that there would be no change in the rate, despite pressure from some EU countries.
Fine Gael leader Enda Kenny and Labour Party leader Eamon Gilmore yesterday called for an immediate election saying the Coalition had lost the authority to govern.
Ireland’s position was discussed on the margins of a Nato summit in Lisbon today by European leaders.
Ireland is also set to come up at an EU-US summit this evening in Brussels, when Barack Obama meets commission chief José Manuel Barroso and European Council president Herman Van Rompuy.
Irish borrowing costs spiked again yesterday when it emerged that AIB has lost about €13 billion in deposits since the start of the year.