NTMA: Irish reliance on corporation tax too risky
The outgoing Government has been touting the amount of spending leeway it expects to have over the lifetime of the next Dáil, despite claims from the likes of the Fiscal Council that the wriggle room is actually pretty tight. But now the State's own money managers have warned of the need for prudence.
In a new research paper looking at Ireland's crucial export sector, economists at the National Treasury Management Agency (NTMA) warn that Ireland is over-reliant on big multinationals for corporation tax.
Finance Minister Michael Noonan has argued that the bulk of the surge in corporation tax receipts in 2015 will be repeated again this year, amid concerns over its sustainability.
While the NTMA paper agrees that most of the cash is "bankable" again this year, it notes that at the end of October last, the top 10 paying companies accounted for half of all corporation tax receipts - up from 24pc between 2008 and 2012. And this over-concentration poses risks, the NTMA argues.
As global stock markets slide to new lows as fears of recession grip investors, the NTMA's report warns that "there is a risk in a recessionary period from the increasing concentration of corporate tax receipts".
"For 2008-2012, the top 10 corporation tax-paying companies accounted for 24pc of all corporation tax receipts," the report by NTMA economists David Purdue and Hansi Huang said.
"For the first 10 months of 2015, that percentage is 50pc. While November corporation tax receipts may have reduced this share as small companies filed returns, it is clear that a high concentration leaves Ireland open to idiosyncratic company/sector risk.
"Prudence in the face of such concentration would be wise."
The State took in €6.87bn in corporation tax receipts last year - more than 50pc larger than expected in Budget 2015, and more than was collected before the crisis.
Buoyed by reassurances from the Revenue Commissioners that the intake will be repeated again this year, Mr Noonan has repeatedly said that corporation tax accounts for just 13pc of the overall tax take and that the new government will remain prudent.
Any extra money coming into the State's coffers, he said, would be used to reduce the deficit.
The NTMA report, which was also reported on by business website Finfacts earlier this month, also raised concerns about the concentration of Ireland's exports. It said Irish exports were among the most concentrated in Europe, with the top 10 goods products accounting for 45pc of all goods exports. This posed a number of risks, the agency argued.
The first is that the multinationals which drive this growth could relocate elsewhere, although the agency points out that the reasons for multinationals locating here are the same reasons that have ensured they remain.
But it added: "Even if multinational companies choose to remain in Ireland, our dependence on these companies opens Ireland up to idiosyncratic company/sector shocks which are hard to mitigate.
"A downturn in the ICT sector for example could see lower exports, investment curtailed, FDI inflows decreased, a fall in employment and a lower tax take for the State. This type of shock is not something Ireland can easily mitigate in truth."