Minister welcomes positive growth estimates but warns tax receipts will fall

Finance Minister Paschal Donohoe has upgraded his growth and budget surplus forecasts for this year but has warned that Corporation Tax receipts are set to fall by up to €2bn.

Speaking after a special Cabinet meeting in Marino, Dublin, Mr Donohoe said he and his officials now estimate the economy will grow by 3.9% this year, and averaging 3% per year until 2025.

The improved growth has seen Mr Donohoe target a budget surplus of 1 per cent at quicker pace – by 2021.

He said that in 2020 a Budget surplus of 0.7% of GDP is expected, which in cash terms is €2.4bn.

From 2022 onwards, implementation of the OECD’s Base Erosion and Profit Shifting (BEPS) initiative is assumed to reduce corporation tax receipts by an incremental €500 million per annum.

“While there is some uncertainty surrounding this figure, it is the Department’s best assessment, based on ongoing work being carried out by the Revenue Commissioners, that the overall risk from BEPS-related changes could be in the range of €800m to €2 billion,” Mr Donohoe said.

This is lower than the stated risk identified by the Irish Fiscal Advisory Council which warned the drop off in corporation tax receipts could top €6bn.

Even though the higher growth is now being factored in, Mr Donohoe said he is not changing the budget packages set out for the coming years.

As a result, the overall unallocated spending over the period 2021-2024 remains unchanged from the orderly Brexit scenario of the Summer Economic Statement at €8.6 billion.

Mr Donohoe said: “Running budgetary surpluses in good times is the best way of de-risking our economy and our public finances from the shocks that – as a small open economy – are likely”.

“Changes to international taxation are on the way: we have no control over this and we must prepare for this. This is why we need surpluses. At the same time, we are maintaining capital expenditure at high levels in order to address the bottlenecks that exist and to ensure that the infrastructure that is needed for a growing economy and society are in place.

"We are also providing for further improvements in public services over the medium term to support the development of our economy and, more importantly, our people,” he said.