Fitch: Apple ruling exposes divisions in coalition

The European Commission’s ruling Apple must pay the State €13bn in back taxes could be mixed news for the country’s debt credit rating, but has exposed divisions in the Fine Gael-led minority Government, Fitch Ratings has said.

Taking the €13bn could “substantially” lower Ireland’s gross debt, but could also spell trouble for the country if the move were to discourage multinationals from investing here, the ratings firm said.

The assessment by Fitch is similar to the one given by S&P Global Ratings, and also chimes with some of the arguments set out by the Government late last week for its decision to appeal the commission’s decision.

“If upheld, the commission’s ruling would represent a substantial one-off fiscal windfall for Ireland,” Fitch said.

“If used to pay down debt and/or reduce borrowing rather than spent, this would accelerate the improvement in public debt dynamics that has been driven by fiscal consolidation and robust nominal growth.”

Even without the Apple back-tax payment, which is equivalent to over 5% of GDP, Fitch projects Irish gross debt will fall to 63.7% of GDP in 2020 from last year’s hugely revised debt level of 78.7% of GDP.

Nonetheless, the competitive 12.5% corporation tax rate will likely remain a lure to multinationals even though “the Apple ruling could add to uncertainty created by the UK’s Brexit referendum, which we think will slow export and investment growth”, it said.

However, the divisions in the new coalition have been laid bare by the issue.

“Notwithstanding the Government’s repeated announcements to appeal, including a cabinet decision on Friday to formally lodge an appeal against the European Commission, divisions within the coalition have become more evident,” said Fitch.

“This shows the challenge the Fine Gael-led minority government faces in formulating and enacting policy. It has already been outvoted in parliament on some minor economic issues since its formation in May. A more unstable political backdrop would add to fiscal and economic risks.”

Fitch said the appeal process could take years.


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