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Government must 'wean itself off' bloated €10.4bn corporation tax receipts, says budget watchdog

The Irish Fiscal Advisory Council says corporation tax levels could be €6 billion above conventional levels.

Google's international headquarters on Dublin's Barrow Street.
Google's international headquarters on Dublin's Barrow Street.
Image: Niall Carson/PA Images

Updated Tue 3:25 PM

THE GOVERNMENT NEEDS to start “weaning itself off the reliance on corporation tax”, the Irish Fiscal Advisory Council (IFAC) has warned.

The latest report by the State’s budgetary watchdog has said that the Irish economy has “recovered from a deep crisis” but that the current outlook is “unusually uncertain”.

IFAC says that the government’s forecasts assume “an orderly and agreed” Brexit but that there is the potential for “an exceptional adverse shock in the form of a harder-than-assumed Brexit”. 

One of the aspects the watchdog questions is the role of corporation tax in the planning for exchequer funding. 

The report outlines that some €3-6 billion of the €10.4 billion corporate tax receipts received in Ireland in 2018 “could be considered above conventional levels” and as such could not be relied upon. 

“Corporation tax receipts in Ireland are now a long way from conventional levels and from what the underlying performance of the economy would imply,” the report states. 

Unlike typical revenue windfalls, these gains might persist for a number of years before reversals could be expected. They also represent a net injection to the Irish economy, given that foreign-owned multinational enterprises contribute four-fifths of receipts.

The report states the government’s medium-term plans are “not credible” and a “gradual move” away from the reliance of corporation tax is recommended.

IFAC also recommends a “better approach to budgetary planning” that should include “a better specified debt target” and “more realistic forecasts for spending”. 

Speaking to reporters today, Finance Minister Paschal Donohoe defended the government’s economic policies but also acklowelged that corporation tax receipts could dip. 

“There are changes that could take place that could affect the level of corporation tax that we will be collecting across the coming years. What is different to where we were a year ago is there is now global process underway, that Ireland is part of, that may well affect our corporation tax collection in the future,” the minister said.

“It is however at this point very, very difficult to form a view regarding what that change could be, let alone the magnitude of it. Changes could happen with how companies are taxed globally that may well offset any challenges that we could face as a result of changes that might be made in relation to where tax is levied.”

Budget

IFAC also advised that the government should “be cautious” and stick to the fiscal plan outlined as part of the most recent Stability Programme Update.

The watchdog says that if any additional spending is to be undertaken beyond the planned €2.8 billion of budgetary measures then, “the government should introduce revenue-raising measures to preserve overall sustainability or scale back planned spending increases and tax cuts elsewhere”.

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Rónán Duffy

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