It’s difficult to get excited about a rainy-day fund against the backdrop of an unprecedented €11bn giveaway Budget – but plans to put €2bn into a backup fund this year, and €4bn the year after, is the type of prudent step that any beneficiary of a cash windfall would be well-advised to do.
In more recent discussions about our ‘over-reliance’ on windfall taxes from large global companies, an impression has formed that Ireland is somehow making a mistake by pocketing all this extra cash.
It’s a crude analogy, but compare Ireland’s tax windfall to a graphic designer who is earning a regular wage – but some years ago developed a side hustle. The designer excelled at getting these extra gigs, and built up a reputation among a small clutch of customers as being very good at this work.
What started off as a couple of thousand extra a year grew and grew. Even when it looked like the taxman was clamping down on this extra income, the money kept on coming.
Is this windfall a problem? The designer knows there is a risk that customers will move on to someone else when the time suits. So the extra money is a boon, a lucky break for the designer – who must take some credit for being good at what they do.
The day may come when that run of extra cash may reduce significantly. The only way this is a negative thing for the individual’s finances is if the extra money becomes necessary to meet their everyday outgoings – and nothing has been saved for that inevitable rainy day.
To bring it back to Ireland’s over-reliance on corporation tax from FDI, the windfalls have been a hugely lucky break for our economy.
The phrase ‘over-reliance’ suggests that perhaps Ireland’s economy should try to re-balance itself and stand on its own two feet.
But there is no way that our domestic economy can conceivably balance out the surplus billions being brought in by FDI tax. The only thing that can be done is to look at the money as somewhat separate from core income, rein in spending, and save for that rainy day.
Politicians are under increasing pressure to support the population, and as we lurch from one crisis to another, saving up billions for what-ifs hasn’t really been feasible.
However, our ‘over-reliance’ on corporation tax is weighing on the minds of political advisers – particularly given the jitters over the long-term commitment of Big Tech to Ireland, as well as their own prospects.
A recent paper from the Department of Finance, De-risking the Public Finances: Assessing Corporation Tax Receipts, delved into this, stating that “over-reliance on ‘windfall’ corporation tax revenue poses a clear risk to the stability of the public finances”.
Last week, Finance Minister Paschal Donohoe estimated that ‘excess’ corporation tax – that is, the amount which may be more vulnerable to a shock – could be as much as €10bn.
The report by the Department of Finance said it is not possible to estimate the level of windfall receipts “with any degree of precision”. Having sliced and diced the numbers, it settled on a mid-point of around €4bn to €6bn last year.
It points out that the rainy day fund was initially capitalised with a €1.5bn transfer from the Ireland Strategic Investment Fund. The plan was that there would be annual transfers of €500m from the Exchequer from 2019 to 2023, plus other transfers as decided on by the finance minister, with the support of Dáil Éireann.
The economic impact of Brexit and Covid has meant that none of the €500m transfers, nor any others, has been made. The plan to restart the fund is a prudent one – but the challenge for politicians now will be to resist dipping into it, as the crises seem to keep on coming.
The media did quite well out of last week’s Budget, with newspaper groups particularly pleased to see their campaign to cut Vat from 9pc to zero finally bear fruit.
It is a challenging time for our sector, intensified by the soaring costs of newsprint, while commercially successful digital models are still finding their way.
RTÉ is to receive €15m, as was recommended by the Future of Media Commission. It’s only an interim fillip – but it is a good omen of what may be coming down the line.
But we have to say hats off to TG4 – which managed to secure €7.4m in the Budget.
The Irish-language station has been highly successful over recent years in getting extra funding – and this latest represents a 16.5pc top up. It also got €4.2m last year, and €3.5m in 2020. RTÉ must be looking on with envy.