ESRI: Irish fallout from 15% global tax rate may be less severe than expected

The Government is expected to say it will join the group of over 130 countries that have signed up to the tax initiative

The Department of Finance has long said that the overhaul led by the Group of Seven richest nations, and co-ordinated by the OECD, would cost the exchequer €2bn in revenues it would have otherwise generated. Picture: Pexels

The fallout from the global tax overhaul may be less severe than some commentators believe, the Economic and Social Research Institute (ESRI) has said.

The assessment comes as the Government as early as later today will likely acknowledge it will join the group of over 130 countries that have signed up to the tax initiative to impose a global taxation rate of 15% on large multinationals. 

The Department of Finance has long said that the overhaul led by the Group of Seven richest nations, and co-ordinated by the OECD, would cost the exchequer €2bn in revenues it would have otherwise generated.  

Outsized flow of investments

Some commentators have also raised concerns that the outsized flow of investments into Ireland will be weakened as Ireland bows to the inevitable over the 12.5% corporate tax regime for over 25 years.      

Speaking at the unveiling of its latest quarterly bulletin, ESRI professor Kieran McQuinn said it was important to avoid downplaying potential effects from the tax changes to erode the base of the exchequer's corporate tax revenues, or in terms of future investment by multinationals.      

However, Mr McQuinn said studies suggest that the tax rate plays a less significant role for developed economies, which means the overhaul will unlikely lead to any "huge catastrophic" fallout. 

"It does not represent a change in attitude from Ireland Inc, as it were, about attracting FDI (foreign direct investment) in general," he said.        

Written by Mr McQuinn, Conor O'Toole, Cathal Coffey, and Wendy Disch, the report provides further evidence for what the ESRI said was "the extraordinary performance of the Irish economy" during and following the worst of the Covid-19 pandemic. The Central Bank has also predicted a huge economic rebound, in a report earlier this week.  

Kieran McQuinn, research professor at ERSI, said studies suggest that the tax rate plays a less significant role for developed economies. 

          

On jobs, the ESRI projects that unemployment will return to its pre-pandemic level of below 5% as early as the end of next year. Helped by consumers, domestic demand will surge by over 7%, and possibly more, in 2022. And exports will continue to boom, which will help to lift GDP by over 14% this year and by 9% in 2022, it said.

Unemployment falls

There was more good news yesterday as the CSO said unemployment, including people requiring the pandemic unemployment payments, fell to 10% in September, down from almost 12.5% in August.       

The ESRI said the underlying economy continued to expand and people have returned to work. That means the public finances are in good order: the ESRI predicts a budget deficit this year of only €14.7bn, or 4% of GDP, that will narrow to €8bn, or 1.7%, in 2022.

Ostensibly heavily indebted against conventional debt measures, anticipated growth in the tax revenue base would allow "sustainable" borrowings and for the Government to run "mild" budget deficits, it said. That would help fund the huge capital infrastructure plans for public housing and climate change, the institute said.    

Inflation pressures driven by energy costs will ease in time but will nonetheless need to be monitored, said the ESRI, projecting consumer prices will rise 2.5% in 2022.