Cabinet to discuss 'volatile' corporation taxes

Public Expenditure Minister Michael McGrath and Finance Minister Paschal Donohoe have in recent weeks said that much of the recovery in the public finances after Covid is due to the continuing surge in corporate tax receipts. Picture: Damien Storan.

The Government will examine a Department of Finance report on Ireland's "volatile" corporation taxes on Wednesday.

The Annual Taxation Report published last week sounded some alarm at the over-reliance of the economy on tax revenues from large companies. One in every four euros taken in tax is now sourced from the corporate sector either through the income tax from the sector's employees or through corporation tax.

The sector itself is further concentrated with just 10 taxpayers paying 53% of all corporation tax receipts last year. A decade ago, this figure was closer to one-third.

The share of corporation tax as a percentage of overall tax revenue in Ireland is more than twice the EU average of 6.3%. Last year €1 in every €8 collected by the State was sourced from a very small number of highly profitable firms.

With this in mind, Finance Minister Paschal Donohoe earlier this year requested his officials to examine how much of the current corporation tax yield may be "excess", above what should be expected from the economic fundamentals. Sources said that identifying this excess will enable the Government to avoid basing expenditure on "unreliable revenues". The report from the department will be discussed at Wednesday's Cabinet meeting.

Attractive location

Both Mr Donohoe and Public Expenditure Minister Michael McGrath have in recent weeks said that much of the recovery in the public finances after Covid is due to the continuing surge in corporate tax receipts and that this is seen by the Government as a positive as it indicates Ireland is an attractive location for highly profitable multinational firms.

However, both men have said that these receipts are potentially "extremely volatile" and cannot be guaranteed at current levels into the future.

There is particular awareness of the concentration of the multinational sector, with sources saying "a very significant portion of our tax take is subject to the business decisions of a small number of taxpayers".

"The corporate tax receipts we have experienced over the past several years could be transient, and don't form a sound basis for building permanent commitments," a source said.

"This is a medium-term risk that we can manage if we make the right decisions in the time ahead."

Cabinet is also set to discuss a programme of permanent upgrades to Rosslare Europort in Wexford. Last December, Mr McGrath said that the port needed a new state-of-the-art border control post as a result of Brexit-related checks. Ireland will receive just over €1bn of funding from the Brexit Adjustment Reserve, the biggest single allocation for any member state, just over 20% of the total fund.

Cabinet will also discuss a memo from Foreign Affairs Minister Simon Coveney around the opening of new diplomatic missions abroad, understood to be a new embassy and two new consulates.