Monday 23 September 2019

Up to €6bn in corporate taxes could be at risk, Government is warned

Independent watchdog declares spending plans are 'not credible'

Scathing: IFAC chief Seamus Coffey attacked the Government’s spending plans. Photo: Daragh Mc Sweeney/Provision
Scathing: IFAC chief Seamus Coffey attacked the Government’s spending plans. Photo: Daragh Mc Sweeney/Provision

David Chance

Up to €6bn in revenues that currently come in from corporate taxes could be at risk, the Irish Fiscal Advisory Council (IFAC) warns in its latest assessment of the country's finances.

The figure is the upper boundary of calculations from the council and represents around a 10th of all national budget revenues. It is equal to the State's entire infrastructure spend last year.

It forms a significant part of the €10.4bn in company tax receipts that allowed the Government to pay for significant health overspending in 2018 as well as big infrastructure plans and to come out at the end of the year with the first budget surplus since 2007.

"Any money that has been coming in has been committed to fiscal measures either on the spending side or on the tax side," said Seamus Coffey, who heads the fiscal council, an independent body charged with monitoring State finances.

Revenues from company taxes now account for 18.7pc of the Government's total tax take - the highest percentage in the European Union - and have repeatedly come in well ahead of expectations.

Calculations from IFAC show "some €3bn to €6bn of annual receipts as of 2018" were in excess of the level that could be explained by the performance of the domestic economy.

Mr Coffey also noted these revenues were €5.4bn more than forecast in 2015 when the government set out its medium-term budget plans and were well in excess of EU averages.

The fiscal council said revenues in excess of forecasts should be placed in a "prudence account" and not used to fund day-to-day budget expenditure.

If that were done, the money that was ring-fenced could be deployed in the event of a severe economic shock like Brexit or saved in an existing rainy day fund, Mr Coffey said.

If this programme had been followed between 2015 and 2018, the State would have built up a reserve of €12.3bn by the end of last year, the report said.

Instead, the additional revenues have been used to plug gaps in areas like healthcare.

Mr Coffey was scathing about the Government's budget planning for the future, saying forecasts for State finances were "not credible" after years of overspending. He said the medium-term budget plans from 2020-23 were based on "an implausible slowdown in spending growth".

IFAC said the Government needs to stick to its budget for this year and to bring health spending under controls.

"Higher-than-budgeted spending has been a recurring issue for the Department of Health, current spending overruns average €0.5bn over 2013-18," it reported.

The council said costs controls in some Government infrastructure projects were also weak.

There have also been substantial overruns on capital spending projects, notably the National Broadband Plan whose initial cost of €500m has risen to €3bn and the National Children's Hospital, whose costs have surged to €1.73bn.

Looking to the budget for next year, the fiscal council said there was possibly room for tax cuts to the tune of €300m, although it said the Government would be better advised to outperform on the deficit.

Looking beyond next year, some of the assumptions appeared to be unrealistic, especially regarding public sector pay where assumptions made by the Department of Finance are that rises in the wage bill for State employees slow significantly and are flat in 2022 and 2023.

"IFAC estimates would indicate that if public sector pay rates were to increase in line with agreed deals and in line with private sector wages thereafter, this would imply additional cost pressures of over €700m a year," it said.

Irish Independent

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