The Irish tax system was used creatively to underpin our ability to attract foreign investment.
YES says economist John Bradley
There ought to be a statue commemorating the policy-makers of the mid-1950s who slashed export profits tax to zero. Had they been less radical, Ireland today would be more like Wales than like Silicon Valley.
Suggestions that a crucial element of our competitive advantage might vanish in a wave of tax harmonisation generate hysteria. If Irish corporate tax rates were forced to rise to the EU mean of 35 per cent, this would be serious.
But this is a partial and misleading way of addressing a wider challenge that will arise if the EU moves towards a fiscal union that imposes constraints on member-states' tax autonomy.
The wider question is: would such a fiscal union be good for Ireland?
Refusal to contemplate fiscal union because we want to continue to have the lowest rate of corporation tax in Europe is myopic at best and dangerous at worst. Next year the EU will be enlarged by eight former communist countries, most of which have standards of living relative to the EU average that are considerably lower than Ireland had even in the ghastly 1950s, when, in desperation, we played the low tax card.
Already Hungary has reduced its corporate tax rate to 18 per cent, and has built a creditable computer sector through foreign direct investment.
Other states may follow suit, and Ireland's tax advantage is likely to vanish at just the time when its wider cost advantage is being eroded by a decade of tiger-growth and inflationary pressures.
Any strategic planner worth her salt should now look to a future where Irish international competitive advantage will rest on the quality of our infrastructure, the excellence of our education system, our ability to innovate, and the wider benefits of living and working in Ireland, rather than simply on a low corporate tax rate.
Such advantages are less easily eroded by tax-cutting copy-cat competitors.
Opposition to tax harmonisation and deeper fiscal union is often dressed up in hectoring language of Anglo-American contempt for the European social democratic model.
Disdain for Germany, with high tax and spending, sclerotic labour markets, and low growth! Praise for Ireland, with low corporation taxes and social insurance contributions, and the most flexible labour market in Europe! The fact that our structural funds - the engine of our modernisation - have been paid by German taxes tends to be forgotten.
Treated in isolation, tax harmonisation makes no sense.
But movement towards fiscal harmonisation will be necessary if there is to be a United States of Europe.
This would require more fundamental change than EMU, but would develop the logic of EMU with its Maastricht-imposed constraints on national fiscal profligacy.
I find it puzzling that admirers of the US economic model are reluctant to explore the possible gains to Ireland of closer European fiscal integration, even if this process involves a reduced ability to use our corporate tax system unilaterally to distort competition in our favour.
John Bradley is an economist and research professor at the Economic and Social Research Institute
NO says Minister for Finance, Charlie McCreevy
I believe that the European Union should retain unanimity as a voting arrangement for taxation matters. This gives each member-state the right to choose how it should tax itself in accordance with the democratically expressed preferences of its people.
One of the key components of a state's expression of sovereignty is the right to determine the level of expenditure and the tax rates and structures required to support it. It allows the citizens of each state to elect their government on the basis of their proposed level of public spending and the types and levels of taxation to fund these. This is a basic part of the democratic process. Subsidiarity requires that each member-state should be able to decide not only the level but also the balance between various sources of taxation that are most appropriate to its circumstances and that reflects the historical traditions and endowments in each state, for example, the different attitudes to the taxation of alcohol. By having unanimity in taxation matters, we can reach decisions which reflect the concerns and core interests of every member-state.
Of course, where barriers to trade and investment arise through differences in tax treatment, these issues can and are being dealt with at European level. However, my experience has shown me that resolving problems on those types of issues does not require that we move from unanimity in decision-making. Clearly, there is greater ownership of the outcome when all member-states agree, and this is particularly important in tax matters.
Taxation is an important economic tool. The introduction of harmonised systems of rates would impair the ability of each member-state to manage economic conditions particular to that member-state. Even federal states, such as Canada, do not impose fully harmonised personal or corporate tax regimes. Some may see qualified majority voting as a way of preventing countries from using unfair tax competition to attract jobs or raise revenue. Competition in taxation does not mean unfair competition - indeed, Ireland has worked with other countries at EU and OECD level to eliminate unfair competition.
However, a flexible approach to taxation has significant economic benefits in encouraging employment and enterprise. It is but one of a range of factors that influence competitive advantage which must be considered in a global and not just EU context. By retaining unanimity in taxation, Ireland retains the means of influencing decisions that might affect its position in this global environment.
We in Ireland have seen the benefits of a low-tax environment in creating jobs, increasing national wealth and providing the resources to fund public services.
Our improved economic circumstances have not been at the expense of others in the community but represent a net addition to the wealth of the EU. It provides a clear example of how member-states can catch up in economic terms through the right policies at national and EU level.
For these reasons I remain convinced that retaining unanimity in taxation matters is in the best interests of Ireland and the European Union. There is no need to change a winning formula.
Next week:
Should we accept less than one commissioner per member-state?
David O'Sullivan v
Eamonn Gallagher