The European Commission has put down an early marker as Finance Minister Paschal Donohoe plans his autumn budget, recommending the Government cut back on tax reliefs, introduce more taxes such as carbon and reduce fossil fuel subsidies, and to continue reforms of the country’s corporate tax regime that has led to the exchequer tapping huge windfalls from multinationals.
The country-by-country report on Ireland is the last from the current European Commission headed by President Jean-Claude Juncker, tax commissioner Pierre Moscovici, and competition supremo Margrethe Vestager, who at an early stage of their term made it policy of urging serious tax reforms in Ireland.
The country is widely perceived in Europe to deal with the taxes of the US tech giants with kid gloves – a the expense of the more populous EU states.
In its time-worn language, the report of the European Council urges Ireland to “limit the scope and number of tax expenditures, and broaden the tax base”.
It also wants the Government to “continue to address features of the tax system that may facilitate aggressive tax planning, and to focus in particular on outbound payments”, a reference to the tech giants using Irish corporate tax structures to repatriate EU-wide revenues back to the US.
On carbon taxes, the EU wants the Government to cut its fossil fuel subsidies and to send “a stronger price signal to investors by committing to a schedule of increases in the carbon tax over the next decade”.
Nonetheless, the end-of-term scorecard will likely put up few hurdles for Minister Donohoe should he be tempted to pump up current spending or reduce personal income taxes in his October budget, ahead of the possibility of the coalition calling a general election.
The report says the Government is on course to achieve its medium budget target in 2020. And in these times of heightened economic uncertainty, it reiterates the recommendation “windfall gains” – a reference to the huge corporate tax bounties that have swelled the Government’s coffers in recent years – ought to be used to pay down sovereign debt.
Minister Donohoe could likely reply that the proposed funding of the so-called Rainy Day pot will help do just that.
And he could hail the EU’s finding that the Government’s targets to reduce gross debt to 51.6% of GDP in 2023 are “plausible”, even though the commission adds that debt-cutting measures from 2020 “have not been sufficiently specified”.
On social and long term issues, the report makes less comfortable reading for the Government.
On the housing crisis, it notes “years of low investment” has left a scarcity of affordable and social housing, while a shortage of “appropriate infrastructure in the areas of clean transport and energy, water and ultrafast broadband” restricts business growth opportunities.
It warns again on health care spending.
And on skewed nature of Ireland’s economic prosperity across the regions, it notes “significant” imbalances: GDP in the Southern and Eastern GDP surged 74% between 2000 and 2016, “63 percentage points more than in the Border, Midland, and Western region”.
The growth disparity has got worse since 2012, it says.