It was Mark Twain who quipped, “The fool says, ‘Don’t put all your eggs in one basket’…but the wise man says, ‘Put all your eggs in one basket – and take care of that basket’.” Ireland’s Eggs stuck in the corporate taxes of just 10 companies. Is someone watching her?
Like everything else, budgets aren’t what they used to be. European fiscal rules limit governments’ options, and today we don’t get the fireworks that Charlie McCreevy used to dazzle us all with. Still, last week’s budget was remarkable.
“This is a budget for its time,” Public Expenditure Secretary Michael McGrath told us. “A budget trying to respond with unprecedented resources, a breadth of action and a speed of execution we’ve never seen before.”
It definitely was. The relationship between the state and the rest of us has been completely transformed by the pandemic, and the 2023 budget has shown that Big State is here to stay, at least for now. But with Ireland’s tax revenue increasingly dependent on just 10 companies, the catastrophic risk of a sudden loss of corporate tax revenue is clear.
The Irish Fiscal Advisory Council warned last month that excluding excessive corporate tax, the budget balance would remain in deficit. “Excluding corporate tax revenue, which the department sees as a potential ‘windfall’, the government’s budget balance is expected to register a deficit of €8 billion in 2022 and €3.8 billion in 2023,” it said. “Over-reliance on corporate taxes has increased significantly in recent years.”
Our GDP per capita has long been known to be distorted by the upward relocation of many multinational companies. One in four euros of tax revenue now comes from the corporate sector, either through income tax paid to employees in the sector or through corporate income tax. Any shock hitting the multinational sector would have a brutal fiscal impact on Ireland.
The sector itself is further concentrated, with just 10 taxpayers paying 53 percent of all corporate tax revenue last year. For the first time this year, corporate income tax will surpass value-added tax as the state’s second largest source of taxation.
One of the key drivers of Irish growth since the eurozone crisis of 2008-14 has been this soaring corporate tax revenue. As Ireland recovered, corporate tax receipts increased from 11.2 per cent of all taxes in 2014 to 15.1 per cent in 2015 and 19 per cent in 2019. In 2020 they amounted to 20 per cent of receipts. In that four-year period from 2015 to 2018, it accounted for 40 percent of all tax revenue growth.
Yes, it’s great, and anything but the concentration of about 40 percent of net corporate tax receipts in the accounts of just 10 companies has raised fears of overconfidence, which currently favors the Treasury but may not always do so. It certainly leaves us open to a “tech assignment.” Tech is a sector that will be somewhat battered by the 2022 economic downturn. Part of this is due to the cyclicality of certain sub-sectors and bottlenecks in the supply chain. But who knows what
Every recession hits differently. We already experienced a boom-and-bust cycle in the Celtic Tiger era of the 2000s, when windfall taxes, building taxes and excise taxes abruptly dried up after 2008. Aren’t we doing something similar now? We just went from concrete blocks to microchips and big data.
Multinational companies have invested billions in Ireland precisely because successive Irish governments have ensured tax certainty. Our corporate tax was so sacred that during the debt crisis of 2010 the government refused to raise the tax to secure an International Monetary Fund bailout, opting instead to cut the minimum wage and social safety net to encourage savings achieve.
Our low corporate tax rate no longer applies. Last fall, we agreed to sign a global corporate tax reform treaty that would set a minimum rate of 15 percent for large corporations. The long-standing 12.5 percent rate, which has been a cornerstone of efforts to bring jobs to Ireland, will no longer be available to attract investment. Any way you look at it, companies moved to Ireland because our corporate tax rates were lower than in other competing countries. Can we still lure them here? We don’t know for sure yet.
After the pandemic, we all have the title Millennials. We got a budget of more than 11 billion euros and we could only ask ourselves: But is that enough? Enough? It’s an exceptional package of benefits and tax cuts. 2,200 euros for every man, woman and child in the country. Pension and welfare payments are increasing in abundance. There are subsidies for utility bills and child care, free textbooks and reduced tuition, free contraception and new income tax credits.
The Covid crisis provided the perfect stage for a new Big State in Ireland. Ultimately, the government spent nearly €30 billion to keep businesses and workers afloat in the first two years of the pandemic. For the first time in decades, the government is expanding the scale and scope of state economic intervention. And we like it.
Even if everything looks rosy now, a sensible government would certainly consider diversifying tax revenues. Now that they’ve got us all used to living in a big state with big payouts, do they have a back-up plan if just one of these 10 companies stays and leaves Ireland?
https://www.independent.ie/opinion/analysis/government-needs-to-cast-a-wider-tax-net-if-we-are-to-avoid-future-economic-cracks-42034332.html The government must cast a broader tax net if we are to avoid future economic ruptures