It was Mark Twain who quipped: “The fool saith, ‘Put not all thine eggs in the one basket’... but the wise man saith, ‘Put all your eggs in the one basket – and watch that basket.” Ireland’s eggs are in the corporation taxes of just 10 companies. Is anybody watching them?
Like everything else, budgets are not what they used to be. European fiscal rules limit what governments can do and nowadays we don’t get the fireworks Charlie McCreevy used to dazzle us all with. Still, last week’s Budget was remarkable.
“This is a budget for its time”, Public Expenditure Minister Michael McGrath told us. “A budget that seeks to respond with unprecedented resources, with a breadth of measures and a speed of execution we have not seen before.”
It certainly was. The relationship between the State and the rest of us changed utterly through the pandemic and Budget 2023 showed that Big State is here to stay, for the moment at any rate. But with Ireland’s tax intake increasingly dependent on just 10 companies, the catastrophic risk from a sudden loss of corporation tax receipts is clear.
The Irish Fiscal Advisory Council warned last month that excluding excess corporation tax, the budget balance remains in deficit. “When excluding the corporation tax receipts that are estimated by the department to be potentially ‘windfall’ in nature, the Government’s budget balance is set to register a deficit of €8bn in 2022 and €3.8bn in 2023,” it said. “The overreliance on corporation tax has grown substantially in recent years.”
Our GDP per capita has long been famously skewed upwards by the relocation of numerous multinationals. One in every four euro taken in tax is now sourced from the corporate sector, either through the income tax from the sector’s employees or through corporation tax. Any shock that affected the multinational sector would have brutal fiscal implications for Ireland.
The sector itself is further concentrated, with just 10 taxpayers paying 53pc of all corporation tax receipts last year. Corporation tax will this year surpass Vat for the first time as the State’s second largest tax source.
One of the key factors of Irish growth since the 2008-14 eurozone crisis has been this skyrocketing corporation tax revenue. As Ireland recovered, corporation tax revenue mushroomed from 11.2pc of all taxes in 2014 to 15.1pc in 2015 and 19pc in 2019. In 2020 it came in at 20pc of revenue. Over that four-year period, from 2015 to 2018, it accounted for 40pc of total tax revenue growth.
Yes, it’s great and all but the concentration of about 40pc of net corporation tax receipts in the bills of just 10 companies has raised fears of an overreliance that currently favours the Exchequer but might not always do that. It certainly leaves us open to a ‘tech-cession’. Tech is a sector that’s being a bit battered by the 2022 economic downturn. Some of this can be put down to the cyclicality of certain subsectors and supply- chain crunches. But who knows what
Every recession hits differently. We have already lived through a boom-and-bust cycle in the Celtic Tiger era of the 2000s, when windfall taxes, construction taxes and consumption taxes dried up abruptly after 2008. Aren’t we doing something similar now? We’ve just moved on from concrete blocks to microchips and Big Data.
Multinationals have invested billions in Ireland precisely because successive Irish governments have provided tax certainty. Our corporate tax was so sacred that during the debt crisis in 2010, the Government refused to raise the tax to secure a bailout from the International Monetary Fund, opting instead to cut the minimum wage and social safety net to make savings.
Our low corporation tax rate is no more. Last autumn we agreed to sign up to a global deal on corporate tax reform that will set a minimum rate of 15pc for large companies. The long-standing 12.5pc rate that has been a cornerstone of efforts to bring jobs to Ireland will no longer be available to attract investment. No matter what spin you put on it companies were moving to Ireland because our corporate tax rates were lower than other competing countries. Can we still lure them here? We don’t know for sure yet.
Post pandemic we’re all entitled millennials. We have been given a budget costing more than €11bn, and all we could do was ask: but is it enough? Enough? It’s an extraordinary package of benefits and tax cuts. It’s €2,200 for every man, woman and child in the country. There are rises in pension and welfare payments galore. There are subsidies on energy bills and childcare, free schoolbooks and reduced college fees, free contraception and new income tax credits.
The Covid crisis provided the perfect stage for a new Big State in Ireland. In the end, the Government has spent almost €30bn keeping businesses and workers afloat during the first two years of the pandemic. For the first time in decades, the Government is extending the scale and scope of state economic intervention. And we like it.
Even though everything looks rosy now, surely a sensible government would look at diversifying the tax take. Now that they have us all used to living in a Big State with big payouts, do they have a backup plan if just one of those 10 companies ups sticks and leaves Ireland?