The scale of Ireland’s corporate tax windfall over the past seven years is astonishing. According to the Irish Fiscal Advisory Council (Ifac), an additional €22 billion in receipts have flowed into the exchequer since 2014. These are “beyond what can be explained by the domestic economy”, the council says in its latest report. In other words, they don’t stem from activity in the Irish economy but from multinational profits — based on sales elsewhere — washing through the jurisdiction.
It’s long been argued that because these receipts are over and above what we could normally expect and may be temporary, they should be saved or put into a wealth fund similar to the Norwegian oil fund, which is now the largest wealth fund in the world. The idea is that the additional revenue is parked in a fund, with the Government of the day allowed to use the annual return, or part of it, for day-to-day spending. This would provide the State with a nest egg, a potential buffer against future crises, but also — and this is crucial in an Irish context — stop a potential risky source of revenue from being woven into current spending.
Unfortunately, we’ve failed to do this and have used the additional revenue to plug holes in day-to-day spending, mainly in health. Apart from the wasted opportunity, we now have a big problem if the corporate tax tide goes out. And more than half the total comes from just 10 companies.
“By funding current spending with corporation tax receipts, the Government risks having to adjust current spending down to set the public finances on a sound footing should receipts fall,” the council says.
The only upside is that the receipts are still flowing in and are projected to rise from the current level of €15 billion to €18 billion by 2025, meaning we could start siphoning off the excess now and build from here. This would require an act of leadership and a dumping of the short-term approach that the electoral system appears to foster.
