Ireland’s traditional ruling parties are edging towards talks on a historic coalition after ruling out a deal with Sinn Féin nationalists over economic policies that they say will damage foreign investment from the likes of Apple and Google.
The Dáil, the national assembly, sits on Thursday for the first time since Sinn Féin won the popular vote in the February 8 election. The party took 37 seats — only one less than the centrist opposition Fianna Fáil and two more than the centre-right Fine Gael led by outgoing premier Leo Varadkar.
All sides say that the deadlocked parliament will not elect a new prime minister — the taoiseach — in its first sitting and that weeks of politicking are in prospect before any agreement on a coalition.
But Fianna Fáil and Fine Gael, which have dominated Irish politics for close to a century but which have never ruled together, have started to lay the groundwork for coalition talks with Greens and Independents.
They oppose Sinn Féin’s manifesto, which would increase business taxation in an economy heavily dependent on multinational investment — though the nationalist party has said it would keep Ireland’s low corporate tax rate.
“The major objection that we have to Sinn Féin’s economic plan is that they don’t seem to realise that Ireland is a very open trading economy and that changes to our tax system, particularly around multinational corporations, would have an immediate impact on the attractiveness of Ireland as a place for international investment,” Michael McGrath, Fianna Fáil’s finance spokesman, told the Financial Times.
Investment from big employers such as Intel, Facebook, Microsoft, Dell and Oracle has helped to transform Ireland’s expanding economy, with data this week showing employment last year rose 80,000 to a record 2.36m.
About 245,000 people work for international groups backed by IDA Ireland, the state inward investment agency, and an estimated 200,000 work for ancillary companies.
Micheál Martin, Fianna Fáil’s leader, and Mr Varadkar have each insisted they will not align with Sinn Féin, which gained 14 seats and increased its share of the national vote to 24.5 per cent, up from 9.5 per cent in local elections held only last year.
They also have concerns about Sinn Féin’s support for the IRA’s violent campaign to force Britain from Northern Ireland before the 1998 Good Friday peace agreement.
Both Fianna Fáil and Fine Gael have stood aside in the opening phase of post-election wrangling as Mary Lou McDonald, Sinn Féin’s leader, seeks to form a leftist government with smaller parties and independents.
She lacks numbers for a majority in the 160-seat parliament, prompting people in Fianna Fáil and Fine Gael to say that the two parties will have no option but to seek a coalition whenever Sinn Féin talks stop.
Eoin O’Malley, associate professor of politics at Dublin City University, said: “Lots of people in the political system commonly think that Sinn Féin in government would be bad for Ireland’s image as a welcome place for foreign direct investment.”
Sinn Féin has vowed to maintain Ireland’s low 12.5 per cent corporation rate, the cornerstone of its economic model, but high-level Dublin officials and business people said the party’s surge has stirred “nervousness” in corporate circles because of other taxation measures it has proposed.
Sinn Féin wants to stop Ireland’s appeal in a European court against a ruling on state aid by the EU Commission that Apple should return €14.3bn in back taxes and interest to Dublin after finding that its tax scheme was illegal. Ireland has always rejected the commission’s ruling that it gave Apple a sweetheart tax deal, in a case that put the country at the centre of a crackdown by Brussels on the tax practices of big American tech groups.
The party wants to raise €722m from international business by taxing intellectual property assets moved to Ireland between 2015 and 2018. It also wants to increase tax on domestic banks and real estate investment trusts.
A senior Irish official said: “That is not something the international business community would be necessarily used to in Ireland. There are unknowns there, and business doesn’t like unknowns.”
While noting that the wider economic model was not under discussion, the official said “some of the measures that help us do our business do seem to be up for discussion and that has not happened before” in the wake of an election.
“It certainly is a new conversation, having to get to understand the prospect of a left-of-centre government [in a country] which previously would have been very centrist,” the official added.
Mr Varadkar has sought to reassure business, telling a Financial Times conference in Dublin in the days after the election that Irish leaders must provide “political stability and economic security” in coming weeks.
“The political centre in Ireland has been shaken. It’s diminished but it has held. It still represents the views of the majority of people and the majority of representatives in our new parliament,” Mr Varadkar said.
Danny McCoy, chief of Ibec, the country’s biggest business lobby, said some business people were “initially shocked” at the election result. “But now as they reflect on it they will see that the centripetal force in Irish society is towards an outward-facing business model,” he said, adding that the overwhelming thrust of policy in Ireland was centrist.
“There’s a lot in the [Sinn Féin] manifesto to be troubled by. I said before the election that if it was fully implemented it would have grave implications,” Mr McCoy said.
“But there is an inconsistency in the manifesto because if they go after those high-profile promises it undermines capacity for the state to deliver on their housing and health pledges.”
