Wednesday 24 July 2019

Five-year window before global tax reform bites - Ibec

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David Chance

Ireland cannot bet on more than another five years of outsized corporate tax income to boost the budget, and must prepare by investing in infrastructure with the current funds, but also cut back day-to-day spending commitments before the cash runs out.

That is a key thrust of employers group Ibec's recommendations for Budget 2020 today, with a call for investment in education and infrastructure, and measures to narrow the gap between high-productivity foreign multinationals and weaker domestic businesses.

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Surprisingly high corporate tax takes balanced the budget last year and will tip it into surplus in 2019.

The Government should use the current high levels of corporation tax receipts to start delivering major changes now, it says.

This could improve Ireland's competitiveness during a five-year window, before changes to the global tax system start to erode the benefits of the Irish regime in attracting hundreds of billions of euro in foreign direct investment, as well as employing a quarter of a million people.

While the benefits of low rates of company taxes will not erode overnight and it appears that they will continue to generate more revenue than expected for the Government, Ibec's director of policy and public affairs Fergal O'Brien told the Irish Independent that the mix is set to change, with a new set of global tax rules that will alter the State's tax rights and the profit allocations of multinationals.

The emphasis will instead shift to issues like the environment, transport and housing, and to the quality of the workforce, which has emerged as a worry due to cuts to the budget for tertiary education.

"If you look at Dublin versus Amsterdam, Cork versus Copenhagen, on any of those quality-of-life rankings and public infrastructure, we are not quite there. If you look at funding for education, we are not as good as some of those places and we think that is going to become more important," Mr O'Brien said ahead of Ibec's Budget recommendations being sent to the Government.

Unlike some of those who fret that a surge in corporation tax revenues, which have exceeded budget expectations by €14.3bn over the past four years, is set to come to a sudden stop, Ibec says there could be more mileage and that they might rise again before they start to fall off as new tax rules bite. Instead of using those funds to prop up overspending in areas like health, it says that money should be ploughed into areas that will help boost longer-term productivity.

Among the proposals in a wide-ranging brief, Ibec wants capital gains tax cut to 12.5pc to boost startups and to close the productivity gap between indigenous firms and multinationals. This would cost €100m, it suggests.

It also wants an extra €480m for education to halt Ireland's slide down global rankings.

Irish Independent

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