The German Finance Minister has hit out against Chancellor of the Exchequer George Osborne’s plans to cut the corporation tax rate post-Brexit, saying Germany had “no intention” to join in a “race to the bottom”.
Speaking to reporters on Wednesday, Wolfgang Schäuble, Germany’s Finance Minister, noted that Mr. Osborne is expected to brief his fellow finance ministers on the plan to slash corporation tax to under 15 per cent, when they meet in Brussels next week.
The tax rate on company profits had already been falling, from a high of 28 per cent in 2010 to its current rate of 20 per cent, with further cuts due to take it to 19 per cent next year, and 17 per cent in 2020.
“We have no intention to start some sort of ‘race to the bottom’,” Mr. Schäuble said, adding that Mr. Osborne had “made the announcements and I hope he’ll elaborate”.
In recent years, the European Union (EU) has been attempting to harmonise tax rates across the bloc as part of an attempt to create a common financial policy for all member states. But Britain’s vote to leave the EU has freed British politicians to head in a different direction from Brussels on a whole raft of measures.
Using his newfound freedom from the EU, Mr. Osborne plans to use the tax cut as part of a range of measures designed to stave off a financial fallout from Brexit, and as a means to reassure companies that Britain is a good place to do business.
“We must focus on the horizon and the journey ahead and make the most of the hand we’ve been dealt,” Mr. Osborne said.
Scott Corfe, an analyst at the Centre for Economics and Business Research, agreed that it would have a positive effect on the British economy, saying: “While a cut in corporation tax would cost the government money initially, over the medium-to-long term it would be a revenue raiser given the increase in economic activity that it would stimulate.”
But Mr. Schäuble was less impressed. “We’re not opposed to fiscal competition,” he said, but it has to be “fair”.
He confirmed, however, that the German economy has so far suffered no ill-effects following the Brexit vote, and that the German government has balanced the books for the 2017 budget. “At the moment, we’re not observing any negative effects on the German economy,” he said. “But we’ll see if that remains the case.”