Fears over reliance of public services on corporate taxes

A leading economist has said the Government needs to explain to the public just how reliant public services are on the taxes paid by large corporations.

Jim Power made his comments after the 2016 Exchequer Returns showed the outsized contribution company tax is playing in funding public services.

Analysts have long said a small number of multinationals involved in re-arranging their global tax affairs via Ireland following an international crackdown has helped the State take in billions more in corporate tax receipts than it had anticipated over the last two years.

Government officials have said that Revenue confidentiality rules prevent them from identifying the big corporate tax payers.

However, Jim Power said it is was time for the State to release more information because it was necessary for citizens to understand more about how their services were being funded, possibly by an unstable source of tax revenues.

Mr Power said there are ways for officials to provide information without breaching confidentiality rules. Yesterday’s tax-and-spend figures for 2016 showed that corporate tax receipts were again a star performer. With a haul of €7.35bn for 2016, corporation taxes took in €737m more than was anticipated in the year.

In 2015, the additional bounty had amounted to €2.3bn, which means the State has taken in over €3bn more than it had budgeted from a single tax source, over the last two years, according to the figures.

“Corporation tax continues to be the stand-out performer, with receipts ahead of last year and well ahead of forecast, despite some anticipated repayments that hit the books in December,” said Peter Vale, tax partner at accountancy firm Grant Thornton.

However, Mr Vale said the good news for the Government was that the corporate tax source appeared “sustainable, providing a buffer against any Brexit-related dip in tax receipts elsewhere”.

Davy Stockbrokers analyst David McNamara said it was another “good year” for corporate taxes but it was impossible to tell from the figures whether the tax haul had been driven by multinationals following recent pressure from the initiative driven by the Organisation for Co-operation and Development.

Yesterday’s release showed that while corporate tax revenues had outperformed, that Vat, another of the ‘big four’ tax sources, fell short of targets.

Citing anecdotal evidence of increased cross-border and online spending following the slump in sterling since the UK voted in June to quit the EU, some analysts said there were signs that Brexit could hit Government’s Vat tax receipts in the coming months.

Vat receipts which for most of the year failed to hit targets, also fell short in December. Vat receipts brought in €26m less in revenues in the month and €439m less than anticipated for the full 12 months.

The Finance Department yesterday highlighted the healthy annual rise in Vat receipts, saying the underperformance in December was due to a high level of Vat repayments.

Officials said repayment of Vat receipts was not automatically a bad sign, but evidence of an economy which was growing as companies were repaid after completing large capital investments.