Fiscal watchdog urges caution with corporate tax revenues

The Irish Fiscal Advisory Council has warned the government not to spend all of its 2019 corporate tax revenue given the temporary nature of its recent windfall.

The state’s fiscal watchdog recently published its mid-year report claiming that as much as €6 billion of its €10.4 billion income from corporate taxes should be considered excess and not put towards state spending in 2019.

The Council claims that it is impossible to explain why the total corporation tax take is above forecasts. It suggests the surplus income should be set aside in “a prudence account” which could be used to help offset any economic downturn experienced as a result of the UK’s departure from the EU in October.

Seamus Coffey, chair of the Irish Fiscal Advisory Council, said: “Looking at these corporation tax receipts … given the uncertain nature of them, and the fact they have been used to mask spending, something needs to be done.

“We’ve had the wind at our backs for the last couple of years, but that can’t be expected to last forever.”

The Council was established following the 2008 recession and has since been given a mandate to ensure the prudence of the government’s fiscal approach each year.

While the Irish economy has consistently been the best performer out of all the EU’s member states, it remains reliant on a small cluster of multinationals that are volatile and vulnerable to external forces. Ten corporate firms accounted for almost half of the nation’s corporate tax revenue last year.

Nevertheless, the government has opted to loosen the purse strings of late, increasing spending on healthcare and in other areas, taking annual spending growth to 6.7% in 2018.

The Council also believes the Irish economy is close to operating at full capacity, putting it at risk of being unable to keep pace with growing demand.

However, the longevity of this demand will hinge largely on the country’s new relationship with the UK after its exit from the EU. The watchdog predicts a disorderly UK exit could hit the Irish economy by as much as four points.

Image: Wikimedia Commons, CC BY-SA 3.0

Last updated: 25th June 2019