The €14 billion in total windfall for the Irish Exchequer from the Apple tax case is unlikely to cause a short-term overheating of the economy, given the country’s “sound fiscal framework” that’s designed to deal with volatile corporate tax revenues, according to one of the world’s largest credit ratings agencies.
Fitch Ratings said that the imminent cash injection comes at a time when the State’s fiscal position is already strong.
Following 12.6 per cent corporate tax revenue growth in the eight months of the year, the firm has raised its 2024 Irish budget surplus forecast to €9 billion, or 1.5 per cent of gross domestic product (GDP), from 1 per cent, previously. This does not include any Apple payments.
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“Ireland has a prudent domestic fiscal framework designed to mitigate risks from the large and highly concentrated windfall corporate tax revenue,” Fitch said. “[This] should help it absorb the inflows without causing short-term economic overheating risks.”
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Fitch highlighted the Government’s rule to cap current expenditure growth at 5 per cent – even if the Coalition has breached this repeatedly – and the new sovereign wealth funds it has set up to absorb much the State’s future windfall corporate tax revenues.
The Government said last week that it would collect the Apple taxes, after the European Court of Justice (ECJ) issued a surprise ruling confirming the European Commission had been correct eight years ago when it decided the iPhone marker received €13 billion of illegal aid from the State. The decision was subsequently the subject of appeals through the EU General Court and the ECJ.
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The money, plus interest, has been held in an escrow account since 2018. That currently amounts to about €14 billion, taking into consideration movements in the value of underlying assets, mainly European government bonds, and payments totalling €455 billion made to other countries that had certain tax claims against Apple.
The Government has said that it is not aware of any further third-country claims.
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Minister for Finance Jack Chambers has said the ECJ decision “will not impact on the parameters already set out” for the 2025 budget in the July summer economic statement and that drawing down the funds from the escrow account would take months, not weeks.
“Ireland’s low and declining debt ratios, budget surpluses and prudent debt management mean that the total 2024 borrowing target [of the National Treasury Management Agency] is just over €6 billion and Fitch believes the scope to use the €14 billion to reduce public debt is limited,” the firm said.
“Medium-term refinancing needs are among the lowest in the euro zone, with 35 per cent of outstanding debt maturing in the next five years, compared to the euro zone average of 47 per cent.”
Ireland’s total State debt currently stands at about €220 billion.
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