The auspicious legal defeat that means Ireland collects up to €14 billion of back taxes and interest from Apple that it insisted for a decade were not owed, will prompt sweeping rewrites of draft manifestos being prepared for the general election.
The money is not the godsend as it would have been eight years ago when the European Commission first decided that the iPhone marker received €13 billion of illegal aid from the State – a decision that would be appealed by Apple and the Government through the EU courts in Luxembourg.
Irish corporate tax receipts for 2016 – the State’s third year out of an international bailout – amounted to €7.35 billion. At the time, the country was being run on a ninth straight budget in deficit.
The Apple pot – held in escrow since 2018 and currently worth about €14 billion – now equates to less than half of the €30 billion of corporate tax receipts expected to flow into the Exchequer this year.
Much of the taxes are windfall in nature and driven by Irish and global tax regime changes that the high-profile Apple case fuelled.
The Government’s last official forecast, made in April, pointed to a budget surplus of more than €8 billion for this year.
[ Multinationals not alarmed at Apple tax judgement, head of IDA saysOpens in new window ]
Taoiseach Simon Harris made it clear this week that the Apple billions – which will take months to transfer after the European Court of Justice (ECJ) ruled they must be paid to Ireland – won’t be used for day-to-day spending. But he said the Government needs to discuss the most appropriate use “in the interests of the Irish people now and into the future”.
It will be the next government that gets to make those decisions, with an election due by the middle of next March, but most probably – according to widespread speculation – in November. The bonanza is poised to be a target for lobbyists, pressure groups and think tanks alike.
But what do Ireland’s lenders – who are owed €220 billion – and agencies that advise them on the State’s creditworthiness have to say?
The Apple judgment will only increase international scrutiny of Ireland’s tax regime and how it continues to be exploited by big US companies
“The main message from bond investors would be to save the money for a rainy day – so put them in the sovereign wealth funds and boost the proceeds,” said Jens Peter Sørensen, chief analyst at Danske Bank, a primary dealer in Irish Government bonds. ”
He cautions against using the money to lower debt by redeeming bonds. That, he says, would reduce the level of tradable bonds at a time when new debt issuance is already low.
How will the Apple tax ruling affect Ireland’s relationship with other multinationals?
Reducing liquidity would put some off investing in Irish bonds – which could ultimately increase borrowing costs. (The NTMA has raised less than €7 billion a year since 2021 – compared to an average €18 billion over the prior five years.)
S&P Global Ratings, the world’s largest credit ratings agency, said if the money were put into two new sovereign wealth funds – the Future Ireland Fund ICNF
and Infrastructure, Climate and Nature Fund (ICNF) – its analysts would give Ireland the benefit of assets in these when assessing net Government debt, which remains “relatively elevated”.
The Irish economy is viewed to be running at full tilt – with a record 2.75m people at work and an unemployment rate running at about 4%
The argument for investing over paying down debt is greater when weighed against the current cost of borrowing. The average interest rate on Ireland’s debt stands at about 1.5 per cent and is expected by the National Treasury Management Agency (NTMA) to stay relatively stable over the medium term.
By comparison, Norway’s €1.57 trillion sovereign wealth fund, the largest and one of the most transparent such funds in the world, has delivered an average return of 6.3 per cent over the past decade.
As the Irish economy is viewed to be running at full tilt – with a record 2.75 million people at work and an unemployment rate running at about 4 per cent – Javier Rouillet, an analyst with credit ratings firm DBRS Morningstar, says that using the money for capital investment may “overheat” the economy.
“It’s also important to time the execution of capital investment, as human capital shortages and regulatory constraints could dilute the desired impact,” he said.
“That said, addressing the insufficient supply of housing and infrastructure amid Ireland’s rapid economic and population growth and filling green and social investment gaps are important for Ireland.”
These could ease what economists like to call “structural constraints” holding back the country’s potential.
As the reputational damage from the European Court of Justice (ECJ) ruling plays out on the foreign direct investment front, some economists say the best counterbalance would be to invest the Apple money in areas that multinationals are most concerned about, like housing, energy and transport infrastructure.
“Ireland has correctly placed itself as the location of choice for companies wanting to access the [EU] single market,” said Dermot O’Leary, an economist with Goodbody in a note to clients this week.
“It should continue this strategy by using this ‘high quality’ problem to address longer-term structural issues such as infrastructure, climate transition, education and ageing. That requires a long-term vision. In the meantime, the savings funds are an appropriate safekeep for the money.”
Meanwhile, Roderick McAuliffe, a bond trader at Cantor Fitgerald Ireland, said that investors in Irish debt are less concerned about where the Apple money will go, but rather the sustainability of the State’s already-bloated corporate tax revenues.
The Apple judgment will only increase international scrutiny of Ireland’s tax regime and how it continues to be exploited by big US companies, even after a decade of reforms to tighten tax rules here and internationally.
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