Saturday 19 October 2019

David Chance: 'Donohoe will have to face down tax cut calls from Varadkar as reckoning nears'

 

Finance Minister Paschal Donohoe. Photo: Gareth Chaney, Collins
Finance Minister Paschal Donohoe. Photo: Gareth Chaney, Collins

David Chance

Finance Minister Paschal Donohoe has long known the game is up on digital taxation.

He acknowledged as much in May when he told an international conference: "It is very clear that change is coming to the international tax system. This reality must be recognised and managed."

Agreement by the G20 to get new rules in place on digital taxes by 2020 means the day of reckoning has come closer on changes that the International Monetary Fund reckons could cost the Exchequer between €1.5-€3bn of its €10bn a year in corporate tax receipts.

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Corporation tax receipts hit 18.7pt of the State's total take last year, the highest proportion in the 30 nations that make up the Organisation for Economic Cooperation and Development.

That means the minister is going to have to make some tough spending choices. The surge in company tax revenues has allowed the State to fund €600m in health overspending alone in 2018, at the same time as doubling investment to €8bn by 2020 from 2013.

Government spending is currently rising more than 6pc a year, and making sure the kind of overrun on health that was seen last year is a priority for Mr Donohoe.

The good news is that despite the higher spending, he presided over the country's first budget surplus since before the crisis.

There will be another small one this year and next.

A second positive is the run rate for corporation tax revenues has now normalised as tax breaks related to the crisis era have faded.

A third is that low global interest rates mean the debt service burden is much less than before the crisis.

However, what the threat to revenues does mean is we can ill-afford another hospital overspending fiasco.

And there is the known unknown that is Brexit where the chances of a "no-deal" scenario are on the rise, with the risk of severe damage to the economy.

It also means Mr Donohoe will have to face down any demands from Taoiseach Leo Varadkar for tax cuts as an election nears.

Irish Independent

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