Business Irish

Thursday 21 June 2018

'There is an exposure on the corporation tax front' - Dept of Finance

Finance Minister Paschal Donohoe. Photo: Steve Humphreys
Finance Minister Paschal Donohoe. Photo: Steve Humphreys
Colm Kelpie

Colm Kelpie

Overheating in the economy is not expected to occur this year, Finance Minister Paschal Donohoe has said.

Mr Donohoe also said that he would be looking to use all the money and resources available when it comes to making spending decisions, but said some may be held back.

As the Department of Finance forecast the economy moving towards full employment, Mr Donohoe said that if overheating does begin, his department would monitor it and "take action as is needed". "I do not see overheating in the economy now and I do not believe that it is developing for this year," Mr Donohoe told reporters yesterday.

He said he wanted to ensure that any decisions made by the Government are sustainable.

"In order to ensure that the tax changes of today do not become the savage tax increases of tomorrow, and in order to ensure that the kind of changes I want to make are real, and ones that will last, we have to make these changes in a way that is sustainable and affordable," he said.

The minister said that the Government will look to increase capital spending gradually over the coming years until it reaches 3pc of national output.

Meanwhile, John McCarthy, chief economist at the Department of Finance, said growth last year is expected to be around 4pc to 5pc.

He said growth, in GDP terms, is expected to be 3.5pc this year.

Mr McCarthy said growth is now "synchronised" internationally with robust growth in the US and the eurozone performing well also.

"One big exception is UK economy which I think is best described as moving sideways rather than upwards," Mr McCarthy said.

Mr McCarthy said that after a number of years of solid growth, the economy is not entering a more "mature phase of the cycle".

He said the economy over the coming years will grow by 3pc, which he described as the "cruising speed".

He said the labour market is the best barometer of what is going on in the economy, adding that for every 10 jobs that were lost during the recession, seven have now been recovered.

"We are moving towards a position of full employment in the economy," Mr McCarthy added.

The department's chief economist also focused on the increasing reliance on corporation tax receipts coming into the State's coffers.

Mr McCarthy said corporation tax receipts have doubled since 2015.

They now account for 16pc of total tax receipts, compared with the long-run average which is 13.5pc.

About 16pc of total CT receipts are coming from companies paying less than €1 million, while 36pc are coming from companies paying less than €10m.

About 64pc of receipts are coming from firms that pay more than €10m. He said the top 10 payers account for just under 40pc of all receipts.

"Put another way, those top 10 firms account for about 6pc of total tax revenue flowing to the State," Mr McCarthy said.

"So concentration is an issue. There is an exposure on the corporation tax front. There's a vulnerability.

"And if there was a shock to the corporation tax base, there could be a problem."

Mr Donohoe also said Ireland would still continue to be competitive, even with tax reform in the US.

He also said the Government would look at what the future rates of local property tax will be well in advance of Budget 2019.

Irish Independent

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