The Irish government must control spending, the rating agency warns
Ireland’s ‘magic money’ corporate tax receipts cannot last, a leading ratings agency has said.
All profits in technology and pharmaceutical companies pose the greatest risk to tax revenues, according to DBRS Morningstar.
In a statement released on Friday, DBRS called for “spending controls” to protect against a future reversal in tax revenues.
“The main concern for fiscal policy in Ireland is that large windfall receipts could be reversed at precisely a time when Ireland is facing high public spending on housing and healthcare,” reads the statement.
“The Irish authorities are aware that public finances are worse than headlines suggest and that the rate of growth in corporate tax in recent years cannot be sustained.”
The analysis comes after the Treasury Department’s annual government debt report highlighted weaknesses in public finances from a shock to the multinational sector.
If Ireland’s windfall corporate taxes were to be eliminated – set to rise to around £10bn in 2022
A larger shock that hits energy prices, raises interest rates and slows global growth could result in a 25-point rise in the debt-to-GDP ratio by 2025.
“A drop in corporate tax revenues could trigger a return to public deficits and the associated need to issue new debt at higher interest rates,” the report says.
The national debt rose to 226 billion euros by the end of 2022, compared to 203 billion euros just before the pandemic.
That corresponds to 86 percent of the national income or around 44,000 euros for each inhabitant of the country.
The underlying fiscal position is not as strong as the headlines suggest
Treasury Secretary Michael McGrath said the government must be “aware” of the risks it faces, despite recent tax returns showing buoyant tax receipts in January.
“The underlying fiscal position is not as strong as the headlines suggest,” Mr McGrath said yesterday.
“The tax base is narrow and public finances remain subject to a shock in either the corporate tax revenues or the broader personal income tax revenues associated with these multinationals.”
In January, government revenues were increased by additional taxes paid in the amount of 800 million euros compared to the same month last year and by 300 million euros from the sale of AIB shares.
The budget surplus of 2.8 billion euros in January compares to a surplus of 2.2 billion euros in the same month last year. January is not a big month for corporate tax, but it is for VAT, which was 400 million euros higher than last year thanks to Christmas spending.
DBRS said the fallout from the global tax reform led by the Organization for Economic Co-operation and Development was a medium-term risk for Ireland.
A minimum corporate tax rate of 15 percent is to apply in the EU from next year, with the OECD releasing technical specifications on its implementation this week. However, the US has yet to adopt it.
DBRS said Ireland has “significant benefits which, even in the context of a global minimum corporate tax rate, will continue to keep its economy competitive”.
https://www.independent.ie/business/budget/irish-government-must-control-spending-ratings-agency-warns-42327296.html The Irish government must control spending, the rating agency warns