It’s all very well keeping the ‘shop window’ corporation tax rate at 12.5%, but the tough stance on income tax in Ireland’s emergency budget could have the unintended consequence of erecting a stumbling block to the flow of foreign financial services firms entering the country.

Just to clarify, the income levy – controversially imposed in October 2008 – has been doubled in this week’s emergency budget. It rises to 2% for those earning more than €15k, 4% for salaries above €75k and 6% for pay over €175k.

It’s one of several tax increases imposed by the government to raise revenue and cut back on public spending.

You could view this move as a tax on the rich (which in a way it is), but it’s also slapping an increase on the middle classes, which is likely to negatively impact the vast majority working in financial services.

As the Irish Times points out, single worker (and a single-income married couple) earning €40k a year will see their take-home pay reduce by about €100 a month, while their counterparts earning €60k and €80k will be €174 and €283 worse off. Just imagine what the very senior management could be losing…

The income tax moves could provide a roadmap for the UK and other beleaguered countries to follow, but in the event this doesn’t happen, Ireland faces two new challenges. The first is the prospect that the notoriously mobile Irish workforce will look for work elsewhere, which could lead to an exodus of financial services talent.

Perhaps more pressingly, though, is the fact that foreign firms will be more reluctant to move here. While natives may make up the ranks of the new Irish offices of international firms, a least some of the senior executive team is likely to consist of existing employees transferred from other markets.

If we look at some recent examples to illustrate the point – Nationwide, which opened an office in March, recruited 80% of its workforce locally, while fund manager Henderson’s decision to shift its HQ to Dublin resulted in the transfer of senior management.

This disincentive for foreign workers to relocate to Ireland should not be underestimated and could considerably dent Ireland’s appeal as a financial centre for international companies, which was largely based on a favourable tax regime.

The retention of a 12.5% corporation tax simply may not be enough to sway a company whose workers refuse to move here.