Billy Kelleher: We need to wean ourselves off unsustainable corporate tax revenues 

Government reliance on corporate tax receipts from multinationals for day-to-day expenditure leaves us vulnerable to any fall in this revenue and is unsustainable in the long term

Corporate tax receipts are some of the most volatile forms of funding a government can rely upon. File picture: Dan Linehan

One in every €5 collected by the Irish State in 2020 came from corporate taxes paid by companies operating in Ireland. When over 80% of this money is also coming from only 10 multinationals, it must start an urgent debate in our country. Such alarming ratios should force us to really reflect and ultimately do a major course correction.

€11.8bn every year is a lot of money. Corporate tax receipts fund many important services that the State rightly provides to citizens – health, education, and social protection support, to name but a few cost heads.

It must now be accepted by all that the Irish Government’s current expenditure plans are far too reliant on this revenue source remaining at this level, and even growing. The unsustainability of this reality is well known by most economists and has been highlighted by the European Commission repeatedly over recent years.

Corporate tax receipts are some of the most volatile forms of funding a government can rely upon. One only has to look at what happened in the late 2000s when these receipts fell from €6.39bn in 2007 to €3.9bn in 2008 (with a further eventual decrease to €3.52bn by 2011).

The competitiveness of Ireland as a business environment is also a very important factor. Many companies are now highly mobile and could move their business elsewhere with relative ease. Not to mention the ongoing global discussions on the introduction of a global minimum corporate tax rate.

Ireland remains a very attractive place to establish a business and for foreign direct investment. We are renowned for, amongst other things, our stable legal system, our English language proficiency, our education system, our expertise in pharmaceuticals and technology, our geographical location, our long-standing and continuing membership of the European Union, and, of course, our welcoming disposition. 

Nonetheless, we should not stay in such a vulnerable position in which we base current spending commitments on the assumption that our corporate tax receipts will remain high.

Rainy day fund

Fianna Fáil rightly proposed in its 2016 general election manifesto that corporate tax receipts greater than €6.6bn would be added to the rainy day fund. 

We can all debate where these extra receipts should go, but I think we can all agree that they should not be used to pay for additional day-to-day current expenditure for fear they fall back rapidly in the future.

The key to fiscal success is stability and certainty – knowing that, unless World War III starts suddenly or another global pandemic hits our planet, we have the funds to keep paying for important public services.

As we see governments around the world progress towards reaching consensus on a global minimum corporate tax (GMCT) rate – the introduction of which could cost Ireland up to €2.5bn a year – we must start to gradually wean ourselves off using corporate tax receipts for current, day-to-day expenditure. In the long-term, it is neither sustainable nor prudent.

The full and final impact of a GMTC has yet to be determined but it’s safe to say our corporate tax receipts will more than likely drop. To what extent they will drop by is still unknown.

Should the Irish Government be therefore making long-term, current expenditure commitments based on a revenue source that may dry up significantly? 

I think not and I believe we should follow Michael McGrath’s 2016 advice to cap the use of corporate tax receipts, over a number of years to ensure there is no cliff edge, for current expenditure at €6.6bn.

Investment in Ireland’s future

At the time, Mr McGrath wanted to use additional receipts to pay down the national debt. I think a better option would be to use this money to fund a major investment in Ireland’s future.

We invest in the big, bold and innovative projects that Ireland needs to meet the challenges that come with the 21st century, such the transition to a carbon-neutral and highly digitalised economy.

Spend the money on capital projects that set Ireland up for the future. Invest in offshore wind farms, invest in the fastest broadband that reaches every community, or invest in a national methane digester network to reduce our dairy herd’s net emissions.

All of these activities will stimulate the economy by creating jobs. Yet none of them is adding annual costs that the State must commit to paying in the provision of services.

We have a very narrow window of opportunity in terms of making our corporate tax receipts sustainable in the long-term. The further down this road we go, the more painful any future re-alignment will be for our citizens. We have a duty to act now.

• Billy Kelleher is a Fianna Fáil MEP for Ireland South and is a member of the European Parliament's Economic and Monetary Affairs Committee and Subcommittee on Tax Matters