Foreign Investment and the Politics of Export Profits Tax Relief 1956

T. K. Whitaker and Seán Lemass are generally credited with effecting the policy shiftfrom protectionism to outward orientation. Ireland’s low corporation tax regime,however, has its origins in the export profits tax relief (EPTR) measures introduced bythe second inter-party government in 1956. EPTR was introduced at the urging of theDepartment of Industry and Commerce in the face of long-standing opposition from Revenue and the Department of Finance. Industry and Commerce at the same time successfully thwarted the desires of the Taoiseach, the Department of Finance and other state agencies to have restrictions on foreign ownership of industry repealed. These apparently contradictory positions were rooted in the historical legacy of protectionism. The inter-party Taoiseach, John A. Costello, downplayed the connection between EPTR and foreign investment in an apparent attempt to deprive Fianna Fáil of an opportunity for controversy. Its introduction hastened the end of Fianna Fáil prevarication on the issue of foreign ownership. The importance of the intense electoral competition of the period is also frequently ignored in accounts of the policy shift. Following sixteen years of unbroken Fianna Fáil rule, the next four general elections brought four changes of government. Along with the depth of the 1950s recession, this forced Fianna Fáil into a comprehensive reexamination of its industrial strategy. The economic thinking of the major political parties co-evolved, and many of the institutional innovations of the period were the result of inter-party government initiatives. The defeat inflicted on Finance by the Department of Industry and Commerce partly motivated Finance’s work on Economic Development, the 1958 publication of which provided political cover for Fianna Fáil’s U-turn on overall economic strategy.