Fiscal Council warns Government over reliance on corporation tax

The Government has been warned not to rely on unstable corporation tax receipts when making big spending decisions.

The Irish Fiscal Advisory Council says a return to normal levels of corporation tax could wipe €3.6bn off the annual tax take.

IFAC's new Fiscal Assessment Reporthas also criticised overspending in several government departments and urged the Finance Minister not to go wild in the budget.

The Council said caution is advised as the Government faced risks associated with a hard Brexit, the reliance on corporation tax, possibilities of overheating, and the rapid rise in spending between 2017 and 2019.

It says that with the public finances still in a relatively vulnerable position, the Government has allowed a pattern of spending drift in recent years over and above what was originally budgeted for.

IFAC says its report shows that some €3bn to €6bn of the €10.4bn corporate tax receipts received in Ireland in 2018 could be considered above conventional levels.

"Corporation tax receipts in Ireland are now a long way from what would be projected based on the economy’s underlying performance and based on historical/international norms. This report shows how unexpected corporation tax receipts could be saved by setting these aside through allocations to a 'Prudence Account'," it said.

The Council warns that a disorderly Brexit poses "profound risks" to the public finances, and that if this occurs, "the shock to the economy, revenues, and cyclical spending...could mean debt ratios beginning to rise again".

"The trade-offs could be severe and the Government might need to cut spending or raise taxes to prevent debt ratios from rising indefinitely," it said.

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