A surplus in the public finances of €1.4bn or 0.4% is now likely at the end of the year because of higher than expected corporation tax receipts, Finance Minister Paschal Donohoe has said.
Delivering a keynote address at the Institute of International and European Affairs in Dublin, Mr Donohoe said this surplus is virtually double what was expected on Budget day.
“Taxes paid by the corporate sector in November – the single most important month – were €0.7 billion ahead of expectations. In the year as a whole, overall tax receipts are likely to be €600 million higher than we thought in October,” he said.
“On foot of today’s figures, I now believe a surplus of 0.4 per cent of GDP is in prospect for this year. In cash terms, this represents a surplus of around €1.4 billion,” he added.
The minister said that it is by running surpluses that we can reduce our vulnerability to a reduction in corporate tax receipts.
“As I’ve said previously, receipts at this level will not last forever. A further increase for next year is likely but, subsequently, I expect these receipts to begin to fall. Building up our surplus is the best way of addressing the decline in corporate tax revenue that looks increasingly inevitable. This is now well underway. The implementation of Budget 2020 will be the next step in this process of reducing that reliance,” he added.
He said he realises that changes are needed to the international system of corporation tax, which is 100 years old.
He said he has always supported the OECD as the most effective organisation through which these challenges can be addressed.
“But I want to be clear. The precise form and timing of these changes may be up for debate, but their introduction is not. Change is coming and changes will have an impact on both our economic model – our ability to attract inward investment – and on our revenue stream,” he added.
The minister said that back in 2012, public indebtedness as a share of income was on a rising trajectory. It is now on a downward trajectory although, much more needs to be done, he said.
“Crucially, our economy today is much more balanced than it was during the pre-crisis period. On the eve of the crisis, the construction sector accounted for around 10 per cent of all economic activity,” he said.
“Similarly, the recent improvements in living standards have been achieved without a credit boom. Last year, we had an underlying current account surplus of €13 billion — 6½ per cent of national income. This means we are very much paying our way in the world,” he added.
While many people are still experiencing difficulties, the economy is now in much better shape, he said.
“Quite simply, this would not have been possible without the restructuring of the banking system and the repair of the public finances. Difficult decisions were taken but these laid the foundations for the subsequent recovery,” he added.
But Mr Donohoe acknowledged that the spoils of recovery have not been evenly shared out.
“Having said that, I am acutely aware that economic recovery has not been uniform. Crisis legacies remain, not least in the form of an inadequate supply of housing and healthcare, as well as rental and childcare costs,” he said.
On Brexit, there is no good UK exit for Ireland.
He said anything that disrupts free and easy trade between Ireland and the UK, however minimal or non-intrusive, is bad for Irish business, bad for our economy and bad for our common bonds.
“And the loss of a large Member State – one that has actively promoted free trade and liberal values – comes at a considerable cost to a small country like Ireland, where free and open trade has been the driving force behind the convergence of living standards to EU norms,” he said.
“But we must be realistic. Brexit, in whatever form it takes, will soon be a reality and our economy must adapt. The Government can, and will, help to ease the transition but our economy will have to adjust to a new normal,” he added.