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Is the Irish era of low taxation over?

Over the last few years we have seen a number of prominent UK companies transferring their headquarters to Ireland to take advantage of the beneficial taxation system in the country. While there is no doubt this has led to a significant increase in economic activity in Ireland, and even an increase in tax, income, there are fears that the ongoing economic turmoil will force the authorities to abandon this low taxation model and return to a more traditional taxation system.

When you take into account the €50 billion which could be required to bailout the banking system and the potential £50 billion cost of putting together a "bad bank" to look after toxic property loans, then potentially we have a situation where taxes would need to be increased. There is no chance that the economy will ride to the rescue of the Irish government as businesses and consumers will need support in the short to medium term which will further weaken the Irish government's financial position.

The very fact that many investors have effectively abandoned the Irish economy at this point is a bitter blow and does reduce the options open in the short to medium term. Even though Greece was seen as a major hurdle for the EU there are some who believe that a collapse of the Irish economy could have more far-reaching consequences.

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