Ibec: Little chance of tax cuts in next 10 years

Ibec chief economist, Gerard Brady

Employers group Ibec has warned there will be little room for tax cuts over the next 10 years despite the economy set for robust growth in the near-term.

However, it also suggested there is no immediate need for tax increases, either. Given economic growth forecasts of between 8% and 15% for this year, Ibec said there is no need for a return to austerity.

“Ireland’s strong growth potential means that budget deficits should not require cuts in non-Covid related spending or tax increases as the economy recovers,” it said.

“The Government does, however, face a tricky glide-path to reducing the deficit to sustainable levels as the economy recovers.” 

Ibec said that while there is no need for a return to the era of austerity, the coming decade will be one where “options for new, unfunded, day-to-day spending or tax cuts are constrained”.

“We must be more strategic in our decisions. In this post-Covid era, budgetary policy cannot be just about how we divide up the spoils of growth,” it warned.

In July, the Central Bank suggested tax increases may be needed to cover a continued rise in Government spending.

In a detailed pre-budget submission, Ibec has called for €1.6bn in new gross spending commitments for 2022, which it says is in line with the Government’s medium-term budgetary strategy of reducing the deficit by €6bn between this year and next.

It wants next month’s budget to include tax reforms and digital investment for indigenous businesses and SMEs, in order to aid their recovery after Covid supports end; and additional money for the promotion of Ireland overseas as a tourist location.

It said it is important that the Government now begins to introduce “an ambitious” series of tax reforms for domestic businesses, over the next three years, “to spur recovery and encourage a return to investment in SMEs”.

“There have been several false dawns on this front in recent years – but, with young enterprises key to jobs growth - it has never been more important to get the tax mix right,” Ibec said.

Ibec has also called for the 9% Vat rate for the hospitality sector to be maintained and expanded to include the pub sector. Currently, the reduced rate only covers tourism and accommodation businesses.

"The 9% Vat rate is a vital measure in helping businesses in the sector recover margin at a time when they are facing higher Covid-related costs of doing business," Ibec said.

"However, in recognition that many of these firms are unlikely to see a full return to normality in 2022, they need to have the certainty that the 9% Vat rate will remain in place until at least December 2023."

Ibec also said investment in Ireland’s competitiveness – in the face of the growing threat of a lower global corporate tax rate – is key in such areas as education, R&D and critical infrastructure.

“We must prepare our business model for potential changes in global corporate tax and build back better from Covid by prioritising investments in skills, giving companies the support necessary to meet ambitious low-carbon targets and solving key quality of life issues,” said Ibec’s chief economist Gerard Brady.

“Ireland faces some unique challenges in the post-Covid era. We have obvious, long-standing infrastructural deficits, significant Government policy commitments in areas like health, housing, pensions, and the labour market, and hugely ambitious climate targets to meet," he said.

"The balance of risks suggests that borrowing for ambitious and necessary investment plans can be prudent. 

"However, these plans can only be delivered if underpinned by the tax returns from continued growth in private sector capacity, exports and returns on investment at home and abroad. 

"Without this, our ambitious plans for the next decade on areas like housing and climate will not be deliverable," Mr Brady added.