Raising corporate tax rates would lead to higher unemployment, lower wages and a fall in corporate tax revenues, according to the National Competitiveness Council (NCC).
In a report to be published this week, the NCC - which advises the Government on economic policy - will make a trenchant case for retaining the current low corporate tax regime. It will also call for a reversal of the trend in recent years that has seen the number of workers paying tax at the top rate of 42 per cent rise.
In a draft of the Competitive Challenge Report - which has been seen by The Irish Times - the NCC argues that the low corporate tax strategy has paid very significant dividends over the past 15 years.
The 12.5 per cent corporate tax rate in the Republic and number of related tax rates are under threat on a number of fronts. The US tax authorities are currently examining a number of tax structures built around the Republic's tax regime by US multinationals, which save them hundreds of millions of euro in tax.
There is also growing pressure within the European Union for tax harmonisation and a common approach to corporate tax. The Republic has indicated its opposition to any such moves.
The corporate tax take - a percentage of gross national product (GNP) - is higher in the Republic than in 15 other economies benchmarked by the NCC. These include the US, Germany, Britain, Finland, Italy and Korea. GNP is the value of the goods and services produced in the economy, adjusted for profits made by multinational corporations based in the Republic.
The revenue from corporation tax has allowed income and other taxes to be cut as well as allowing the Republic to "finance necessary public services, and to invest in education, research and infrastructure - factors crucial to building and sustaining Ireland's long term competitiveness," according to the NCC.
The review states that a majority of the NCC members believe "that a reversal of this strategy would threaten a fall in wages and employment and the high level of revenues that the Government currently raises from corporation tax".
The NCC is chaired by Dr Don Thornhill and is made up of representatives of employers, trade unions and other social partners. There are also a number of independent expert members and representatives of relevant Government departments.
The council "reports to the Taoiseach on key competitiveness issues for the Irish economy together with recommendations on policy actions required to enhance Ireland's competitive position," according to its website.
Corporation tax revenues have allowed for a reduction in taxes on work, which "has also supported growth and competitiveness by reinforcing wage moderation through social partnership and by encouraging labour force participation and entrepreneurship", the report states.
The low labour "tax wedge" in Ireland now represents a significant competitive advantage for Ireland, when compared to other European economies.
According to the report, the NCC believes that "three broad principles should continue to inform the State's tax system.
maximising value for money in the provision of public services to keep the overall tax level low; maintaining competitive direct tax rates; broadening the tax base.
