The country’s lure of a competitive corporation tax rate is about to run its course and a new focus on Irish-owned businesses is called for as Brexit looms, Ibec has said.
An additional €500m a year over each of the next three years will be needed to offset any crash-out Brexit, the business group said. In a pre-budget analysis, the business group warned the Government will no longer be able to rely on the huge corporation tax bounties that helped plug spending overruns in healthcare over recent years.
“The corporation tax advantage will probably not last out the next decade,” said Fergal O’Brien, director of policy and public affairs.
Part of a package to boost indigenous firms, it repeated its call for a cut in the “too high” level of capital gains tax; wants help for Irish-owned firms to tap equity for their businesses and seeks assistance for fast-growing SMEs to help them compete with multinationals. It said the current incentive to give shares to retain senior staff was “not working”.
For Irish-owned SMEs, the budget “needs something bold” because the Government has delivered “a lot of platitudes in the past”, it said. And the threat of a crash-out Brexit is greater for firms outside Dublin, which means there is a need for the Government to do all it can to save threatened jobs.
Towns outside Dublin relying on a single employer would be devasted if the jobs were to go because of Brexit, Ibec said, and it called on the Government to identify companies to be “pre-cleared” by the European Commission for funding under State-aid rules.
To keep indigenous companies alive in the event of a hard Brexit entails budget funding of €500m a year for the next three years.
That implies a budget spending package of €1.3bn in October, if Britain were to crash out of the EU at Halloween, Ibec said. But without Brexit emergency measures the cost of its budget package falls to €800m because an expansionary budget is not needed, it said.
Last month, the Irish Fiscal Advisory Council said Finance Minister Paschal Donohoe will only have to hand €600m in additional tax cuts and spending increases — which may, at best, allow him €300m in income tax cuts. It too warned about relying on uncertain corporation tax revenues to fuel spending and tax cuts.
The first wave of global tax reforms called Beps, or base erosion profit shifting, benefitted Ireland’s coffers as multinationals put their intellectual property revenues through Irish-based firms.
That in turn expanded the State’s taxable tax base from which it tapped the many billions in unexpected corporation tax revenues. But Mr O’Brien said that Beps 2, the second round of the global tax shake-up, will be more challenging.
It was “not fully appreciated” the way in which corporate tax bounties have underpinned Government spending, he said, even though the corporation tax tap will not be turned off all at once. Citing fears over a number of projects, including the upgrade at the Dunkettle road, the business group wants the Government to recommit to infrastructure spending.
It fears it will cut project spending first in any renewed downturn. It backed rises in carbon taxes over several years and seeks to establish a commission to look into Ireland’s personal taxation, which it called “the most imbalanced system in the world”.