Government surpluses to be invested in fund

Of the €88.9bn tax intake projected for this year, €24.3bn is expected to come from corporation tax

Finance Minister Michael McGrath said some of the windfall corporation tax receipts could also be used to pay down Government debt, which is projected to be €224.4bn this year. Picture: Sam Boal/Rollingnews.ie

Windfall corporation tax receipts expected this year could be used to pay down debt or invested in a fund to offset the rising cost of demographic changes, Finance Minister Michael McGrath has said.

In its Stability Programme Update published on Tuesday, the Government is forecasting a €10bn surplus this year followed by a more than €16bn surplus next year which is largely on the back of corporation tax receipts.

If corporation taxes were not included, the Government would run a deficit of €1.8bn this year and a surplus of €4.4bn next year.

According to the update, of the total tax intake projected for this year, which comes to €88.9bn, €24.3bn is expected to come from corporation tax. Over the next few years corporation tax receipts are expected to continue to increase with a total of €27.2bn expected in 2026.

However, Mr McGrath warned that roughly half of the expected corporate tax intake this year is what the Revenue Commissioners called “excess” or “windfall” and as such cannot be relied upon into the future.

"We have to make very good use of the sweet spot that we are now in, in relation to public finance, because we know it's not going to last,” he said.

"In the forecasts, we are not projecting that the level of corporate tax receipts will fall, that day will come,” he said.

Mr McGrath added that there are a number of options for what to do with the surplus each year as a result of the windfall in corporation tax, which includes a potential national investment fund, a plan for which he intends to bring to Cabinet.

He said the purpose of the fund is to help to meet additional expenses in public services expected over the coming years.

"The department estimates that it will cost about an extra €7bn to €8bn to provide public services each year by the end of this decade, relative to where we were back in 2019,” he said.

He said the idea of the fund is that it can be used at the appropriate time to meet those additional costs.

The amount we put into the fund, it will be linked to the surplus that we generate each year which certainly for the foreseeable future will be driven by the excess corporate tax receipts, it will be a fund that will be managed.”

Mr McGrath said it is also an option to use some of the windfall corporation tax receipts to pay down Government debt, which is projected to be €224.4bn this year, given that the “interest rate environment has changed”.

In the update, the Government also pointed out that the Irish economy has been “remarkably resilient” despite challenges related to the Russian invasion of Ukraine, increasing cost of living, and rising interest rates.

The Government is projecting that strong employment is expected to continue in the near term with the number of people in jobs growing by 1.6% this year and by 1.4% next year.

Modified domestic demand (MDD), which more accurately reflects the activities in the domestic economy, is expected to grow by 2.1% this year and by 2.5% next year. MDD grew by 8.2% in 2022 but slowed down during the latter half of the year.

In GDP terms, the country is expected to grow by 5.6% this year and by 4.1% next year.