Sunday 24 February 2019

The Coalition is exposed as gambling on tax windfalls

Siren voice: Professor John McHale of the Fiscal Advisory Council has rather spilt the beans
Siren voice: Professor John McHale of the Fiscal Advisory Council has rather spilt the beans

Shane Ross

Is the Coalition cooking the books? I asked the woman from the Revenue mischievously.

She almost laughed, but taxwomen rarely do mischief or humour. She settled for a gentle "No, no, no", followed by a flow of suffocating tax babble.

Three people whom you would never invite to the pub for a pint have been ringing warning bells. The head of the Revenue Commissioners, the big chief at the Fiscal Advisory Council (FAC) and a member of the Central Bank Commission have, in sharp succession, fired highly unwelcome shots across the Government's bows.

It will have come as a wake-up call for Michael Noonan to be cheeked by his underlings. He will hope that ordinary voters switch the dial when mandarins and professors come on the air.

He can console himself that the insubordinate trio normally speak in language so indigestible to the masses that it would anaesthetise an elephant on crack.

In a moment of weakness, I am beginning to warm to a select few of these quango kings and queens. They may be no barrel of laughs, but the mother of all tax massages has provoked our dull but worthy trio to subvert their political patrons.

They are flashing amber lights at the antics in the State's finances.

Professor John McHale, the boss of the FAC, is becoming a proper pain in the Government's butt.

Last month, he issued an initial salvo about the overspending in our public finances. The Department of Finance tried to pooh-pooh his fears about the figures.

On Wednesday, the academic from Galway was back, this time sinking the dagger even deeper into Michael Noonan's ribs.

A month ago, naïve pundits numbered Professor McHale as a possible contender for Governor Patrick Honohan's job at the Central Bank. He can wave goodbye to any hope of future preferment. He is totally unreliable.

Outbreaks of such integrity cannot be allowed to run out of control. He need not expect any more gigs from Michael.

So what is McHale's gripe?

Well, suppose you were left a few bob in your favourite uncle's will. You are thrilled. You are a bit toffee-nosed and want to take your children out of the state school sector. You despatch them to private schools. You are delighted with yourself.

You pay the first year's fees with the legacy. A year later, your aunt dies. She leaves you a similar sum. You pay the second year's fees. In the third year, nobody dies. No money for the fees. You are up the creek. So are your kids. You are forced to remove the kids from private schools.

The Government has a similar problem. It is taking windfall corporation taxes, spending them on winning the election and pretending that the same windfall sums will arrive every year.

One of these years, maybe even in 2016, the corporation tax take will tank. Ireland could then be back to 2008.

John told his employers that their projections for the next five years were "not realistic".

Is this academic speak for cooking the books?

John rightly insists that the sudden €2bn corporation tax bonanza that landed in Ireland from outer space in October is unreliable and volatile.

He says that the Coalition is mimicking the Fianna Fail/Green government's mistakes, when the last regime depended equally recklessly on stamp duty and other property taxes.

And we all know what happened to that unhappy little adventure. Ireland went belly up.

It could happen again.

On Wednesday morning, for the second time in a few weeks, the Government hit squad headed for the airwaves to rubbish John.

This time, they were less than convincing.

John is on the button, but he is an academic suicide bomber. A few weeks ago, he looked like the first martyr about to be sacrificed on the altar of fiscal integrity.

But suddenly, he and his FAC are no longer lone voices. An unmistakable squeak from another government source, this time the Revenue Commissioners, surfaced last week. The nation's taxman is wobbling. Niall Cody, its ultra-conventional boss, has told Noonan that €300m of the €2bn windfall in corporation tax should be excluded from 2016 forecasts. Cody revealed that €1.2 bn of the €2bn surplus came from multinationals.

He urged caution.

Michael Noonan must have been spitting blood. His FAC and his Revenue Commissioners were singing from the same rebellious hymn sheet. Did they not understand he needed the money for the election?

They did. But they were not going to let the Government run amok unchecked.

Two rebels in the camp are bad but a third is dangerous. The cruellest blow to Noonan had already landed, almost unnoticed, on Tuesday morning. Opening the normally friendly pages of the Irish Times, he will have seen a shock headline blaring out at him: "Beware of depending on tax bonus from multinationals' exceptional profitability."

It was not written by some fly-by-night, opposition weekend columnist. It was penned by John FitzGerald, son of Garret the Good - the man who first lifted Michael out of the backbenches into the Cabinet.

John is a former professor at the Government's think tank the ESRI and a current member of the Central Bank Commission.

John FitzGerald eerily suggested that multinationals may be playing tax games. Perhaps they were choosing to pay more tax in Ireland this year because the net was closing in on their global tax acrobatics.

In that case, he suggested that their contributions might be "insecure".

Suddenly, McHale was far from alone. The warnings were coming thick and fast and from credible quarters. The dissenters are suddenly beginning to look more like a consensus than voices in the wilderness.

All our top economists are puzzled. None seems to know how the sudden spike in corporate tax arose. What we do know is that it is the source of all of the outperformance in the Government's accounts this year. And that it is being spent on the voting punters.

How did the Department of Finance and the Revenue Commissioners get the projected figure for corporate tax so horribly wrong for 2015? The Revenue has passed the buck, insisting that it relies on the multinationals themselves to fill it in with figures for their forecasts.

Apparently, the Department of Finance is forecasting another 8pc rise in 2016. And who is it relying on for the evidence? It is using figures provided by the same multinationals!

It is suddenly delivering political gifts to a Government seeking re-election.

There must be more than a fear that the multinationals will suddenly decide next year that they do not want to locate such a big portion of their profits in Ireland. They may want to do a bit of profit-shifting.

The two billion could vanish and take another couple of billion with it. We are becoming more dependent on the multinationals every year. They are deciding the size of our deficits. They are controlling our forecasts. They will soon be writing our budgets.

If Enda Kenny had been given his way, the General Election would already be over. He would be sitting down with Joan Burton and a few Independents, plotting the new stable coalition.

Instead, he is beginning to see the 2016 Budget unravel before him. The future of the Irish economy is looking horribly fragile.

Not only are multinationals dictating the fate of the deficit and current spending, but the news from China, Europe and emerging markets is ominous. Interest rates will soon rise, making our huge debt a greater burden. The nurses are threatening to strike.

Michael Noonan knew the score. He was urging a November poll. It is now a race against time. Big bad news lurks around the corner. Enda must call the election at the earliest possible date in the spring before events expose him.

Next year, if asked again if the Government cooked the books in 2015, the lady at the Revenue might give a more forthright answer.

But do not expect her to laugh.

Sunday Independent

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