The Department of Finance is forecasting a record €13.9 billion in corporation tax receipts this year, €2 billion more than last year.
The forecast contained in the department’s annual budgetary outlook report published alongside the budget is €400 million higher than the €13.5 billion forecast contained in a pre-budget White Paper released just last week.
“A number of large taxpayers in the corporate sector appear to have been unaffected by the pandemic, with profitability – and therefore tax liabilities – remaining high,” the department said.
The revised forecast improves the outlook for the public finances and comes as the Government signs up to a OECD-brokered deal on tax, which will see the introduction of a global minimum rate of 15 per cent.
The department said “revenue from this source” is expected to be affected as international tax policy changes take effect.
The actual cost is difficult to determine, it said, and could be higher than the €2 billion currently assumed.
Even with the OECD changes, corporate tax revenue is forecast to increase to €14 billion next year and to €15 billion by 2025.
Receipts from the business tax now account for one in every five euro of tax collected by the Government
Warning
However, the Government has been warned not to use the excess revenue for day-to-day spending because of the highly concentrated nature of the tax base. About 50 per cent of receipts come from a just handful of companies, thought to include Apple, Microsoft, Dell, Google and Oracle.
“Last week,the Government decided to join the international consensus on a suite of far-reaching reforms to the global corporation tax architecture,” the department said.
“This decision was guided by the need to provide long-term certainty for the enterprise sector and to avoid the reputational costs of remaining outside these reforms,” it said.
“While there will be a direct revenue impact, the more important channel is the impact on investment and employment; in this regard, greater certainty and predictability will help underpin Ireland as a location for mobile investment,” it added.
On the wider economy, the report noted that after “a number of false dawns, mass vaccination has paved the way for a durable economic recovery.”
“Consumer spending is leading the way, as households begin to normalise their savings habits, and this is projected to continue over the course of next year,” it said.
As indicated previously, the department is forecasting turbo-charged growth of 15.6 per cent this year.
Budget deficit
The budget deficit this year – the difference between spending and tax revenue – is forecast to come in at €13.2 billion, compared to the expectation of €20.2 billion, boosted by strong tax receipts and lower levels of spending.
On inflation, the department said “a perfect storm has given rise to a pick-up in both headline and core inflation since the spring, a feature of almost all advanced economies at this point.”
“Amid tight supplies and growing demand on foot of economic recovery, higher energy prices have pushed the headline inflation rate higher,” it said.
It said the department’s projection of a 2.2 per cent inflation rate next year assumes that the spike in price inflation is a temporary phenomenon, noting that consumer price inflation is projected to peak in the final quarter of this year.
