Coalition warned not to use 'excess' revenues for tax cuts

Irish Fiscal Advisory Council urges Government to put 'excess' corporate tax receipts into a reserve fund

The 'Irish Examiner' has already reported that 10 firms contribute 57% of Irish corporation tax revenues — but IFAC now says three corporate groups account for one third of all such revenues. File picture: Laura Hutton/RollingNews

The Irish Fiscal Advisory Council (IFAC) is urging the Government not to fund permanent tax cuts or spending from “excess” corporate tax receipts, and instead put the billions of euro into the proposed reserve fund.

The Department of Finance has previously warned that Ireland's corporation tax take is over-reliant on a handful of multinational companies. The top 10 companies in Ireland contribute some 60% of all corporation tax.

However, a new analysis by IFAC has found the situation is even more precarious, suggesting that three corporate groups accounted for one-third of all Ireland’s corporation tax revenues each year between 2017 and 2021.

This amounted to around €5.2bn in 2021 — the latest year for which data is available. 

IFAC estimates that this figure will be higher for 2022. Its analysis shows that increased reliance on, and concentration of, corporation tax receipts carry with it a significant risk.

One-off shocks

Given this level of concentration, one-off firm- or sector-specific shocks “are likely to be some of the most important drivers of fluctuations in the volume of corporation tax receipts”.

The analysis said that policymakers need to better understand the origins of this corporate tax boom and “not focus exclusively on economy-wide indicators” but also on the “specific activities, performance, and group structures of the largest taxpayers”.

Ireland’s largest corporate payers are concentrated in information and communication technology as well as the pharmaceutical and chemical sectors. The two sectors accounted for 90% of the total corporation tax take in 2021.

Preparing for future challenges

IFAC chairman Sebastian Barnes said the analysis “underlines” that the Government should not use excess corporation tax payments to fund permanent spending increases or permanent tax cuts.

“Saving these receipts in a national reserve fund would help to prepare Ireland for future challenges,” he said.

Last month, Finance Minister Michael McGrath announced the creation of a wealth fund to house excess corporation tax. The Government is expecting to run budget surpluses over the coming years based largely on increasing corporation tax take. It expects to collect in €24.3bn in corporation tax revenues this year and €25.1bn next year.

• Meanwhile, the latest survey of Irish manufacturing showed that multinationals are facing tougher exports order books. The AIB Purchasing Managers’ Index showed the output of Irish factories contracted again, but at a faster pace in May.

“The downturn in global manufacturing stems from weak demand, with declining new orders, falling production, and a rundown of inventories,” said AIB chief economist Oliver Mangan.

“These traits were very evident in the latest Irish data.”

Factory prices declined in the month.