Still only an Apple short of another austerity budget

Anyone who sat through the Oireachtas banking inquiry sessions last year will be able to tell you all about stamp duty and the role it played during the boom years.

Still only an Apple short of another austerity budget

They’ll be able to speak about the dangers of over-relying on windfall taxes and the perils of leaning on temporary forms of revenue to deliver political promises.

Tax derived from a housing bubble was used to offset cuts to income tax. When the bubble popped, the country was caught short and the pain began.

Everybody who came in and sat before those committee members were in agreement we could never afford to do such a thing again.

Here we are though, less than 12 months later, and it’s like all those tedious sessions in committee room three were nothing more than a receding dream.

The level of corporation tax that has flowed into the State’s vaults over the past 18 months or so has been nothing short of sensational.

To date in 2016, corporation tax has outperformed the Department of Finance expectations by €644m.

Put that in the context of tomorrow’s Budget.

Given the assumption about €1bn will be on the table and two thirds of that will go towards additional public spending, then the extra corporation tax taken in so far this year would just about cover that requirement.

In September alone, the State took in €136m in corporation tax it simply hadn’t seen coming.

Fianna Fáil’s demand that €5 be added to the State pension works out at roughly €150m a year. So the corpo tax over-performance in September almost covers that one.

However, there is a catch and it is a worrying one. The other tax headings to date have not fared so well when judged against expectations at the turn of the year.

Income tax is lagging by €114m while Vat is €278m behind. Almost €400m has failed to materialise under two tax headings which are indicative of the state of the real economy.

Were it not for the boom in profits declared here by multinationals then we could be looking at an entirely different budget.

However, it’s not like nobody is talking about this. The Fiscal Advisory Council, the Central Bank and the European Commission all have put their concerns on the record.

Don’t build future budgetary strategy on this welcome new development, they warn.

Instead, eye it with suspicion. As they briefed the media last week, officials at the Department of Finance acknowledged they had been concerned at the end of last year that the huge spike in corporation tax in 2015 had perhaps been a once-off.

However, they went on to say that this year’s performance appeared to suggest that it was something more robust; more long lasting. So, let’s remind ourselves of a few facts about Irish corporation tax.

The vast bulk of it is paid by a tiny number of companies. Ten companies accounted for 40% of all the corporation tax collected in Ireland last year.

This was 6% of all tax revenue in 2015. And just in case the parallels with boom-time stamp duty weren’t already poking you in the eye, how’s this for an eerie symmetry?

That 6% which comes from those 10 companies is proportionally almost exactly the same as stamp duty was in 2007. When stamp duty melted away so too did the room for relatively low income tax rates.

The universal social charge was quickly conceived and we know the rest. Tomorrow’s budget will see reductions in that emergency tax. It will see money given to first-time buyers and pensioners.

Perhaps the Department of Finance has got this one correct.

Perhaps current corporation tax receipts are here to stay and it would be unfair to not take advantage of them to return money to people who soldiered under austerity policies for long enough.

Maybe, when we get to the end of the year, income tax and Vat will have matched up with forecasts.

However, to think we could be one Apple away from another austerity budget, surely puts things into some perspective.

* Paul Colgan is economics editor with Ireland Live News on UTV Ireland.

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