THE economy in Ireland is in a “favourable” position thanks to “substantial” tax payments the nation receives from global corporations.
A new report from the Irish Fiscal Advisory Council claims “Ireland’s next government can expect steady growth and substantial tax receipts” as the nation’s “record employment rates and soaring tax receipts are not expected to unwind soon”
The report, released this month, reveals that corporation tax, which is set at an inviting 12.5 per cent in Ireland, is keeping the nation buoyant.
“Phenomenal levels of excess corporation tax receipts, nearly €16 billion every year, are keeping Ireland in surplus,” the report authors state, however they add that “injecting these receipts into a strong economy is risky”.
“These receipts may well increase, but they remain high risk,” the report explains, adding: “Just three companies account for most of the windfalls.”
Employment is also at a record high across the country, where wages are rising higher than prices, leaving more consumers with more cash in their pockets.
“Ireland has never had as high a share of those in their prime working years at work,” the report confirms.
While the report claims the outlook for Ireland’s economy is “good” it adds that this will depend on two things – what happens with corporation tax going forward and how the next government sets its budgets.
“Ireland’s public finances are being kept in surplus by extraordinary corporation tax receipts,” the authors state.
“These could well grow further as tax allowances end and the effective rate rises, however, these receipts remain high risk.
“As few as three companies account for about 40 per cent of them and a hit to even a single firm could lead to substantial falls.”
They add: “A danger is that budget policy has lost its anchor. Inflation has eased, yet net spending is growing rapidly.
“Even with inflation expected to be two per cent, expansions are likely to remain high at eight per cent on average for 2024 and 2025.
“The next government might be tempted to divert more corporation tax to spending increases and tax cuts.
“In an already strong economy, this could mean further overspends, bad value for money, and delays.”
The authors further state that the biggest risk the nation faces is that budgets continue in this vein and the exceptional corporation taxes the country is receiving dry up.
“This would set public debt on a much riskier course, it would be painful to reverse, especially as pressures from an ageing population mount,” they explain, claiming the next government must act now to put in safeguards to mitigate those risks.
Commenting on the report, Seamus Coffey, the Irish Fiscal Advisory Council’s Chairperson, said: “Ireland is in a favourable position, but a lot depends on how the next government budgets and how it manages corporation tax.
“The next government should put in place some guardrails in the form of a rule. This would ensure it doesn’t ramp up ongoing commitments as each budget day approaches.
“A rule and some realistic plans would help to tackle infrastructure deficits, ageing pressures, and climate needs, while also protecting growth, and limiting future job losses.”