Q & A: The Government is taking in far more in tax than it expected. Shouldn't this be a cause for celebration?
Published 02/12/2015 | 02:30
A: It's a good thing, there's no doubt about that. The crucial tax heads that reflect the recovering economy, improving jobs market and rebound in domestic demand such as income tax and VAT are all coming in ahead of target. But the bulk of the over performance is down to just one tax head - corporation tax.
Q: Why should there be concern about that? Isn't it good that more taxes are coming in from businesses?
A: Yes, of course. But corporation tax is a volatile source of tax receipts. And for some time, the Department of Finance couldn't even say why the amount being taken in by businesses was so far ahead of target. The Department's chief economist John McCarthy once said it was "somewhat of a puzzle". The big question is whether these payments can be relied on to continue.
Q: Are you suggesting they may not be sustainable?
A: It's just not clear. Economists have called for caution, as it isn't known whether this surge can be repeated in future years. The Revenue Commissioners said in a recent letter to Finance Minister Michael Noonan that the State can expect much of the same next year, but said nothing about the following years. The Fiscal Advisory Council said it is concerned about any decision to use unexpected revenues to increase spending until there is more clarity on whether the surge will be sustained.
Q: Are you saying the Revenue Commissioners and Department of Finance have no idea why businesses are paying far more than expected?
A: They claim it's down primarily to improved trading conditions given the rapidly recovering economy, and involves a number of companies. But even Revenue admits that given the scale of the multinational operations in Ireland, it isn't surprising that corporation tax receipts have proved difficult to estimate. Around 80pc of corporation tax receipts come from the big multinational sector.
Q: What's Michael Noonan's view?
A: He doesn't seem worried. He has been echoing the view of the chairman of the Revenue Commissioners, and said it would be repeated next year and reflected improved trading.