Most of the chatter was about how the Dáil had to pass the Finance Bill, which was rushed through the chamber at breakneck speed this week. Arguably more important was the appropriations Bill, which was (as usual) whizzed through the House even more quickly on Wednesday.
All money that is spent by the Government must be authorised by a vote of the Dáil – and the Government is accountable to the Dáil for how it spends that money. That’s one of the pillars of our system of parliamentary democracy. The appropriations Bill contains the legal authority for the money spent this year (on the basis of the estimates already voted by the Dáil) and the continuation of spending into 2025.
“It is critical annual financial legislation,” Paschal Donohoe told the handful of TDs present for his final outing of the 33rd Dáil on Wednesday evening. “It has to be enacted before the end of the year to give effect to the authorisation of voted expenditure throughout 2024 and to allow for the continuation of expenditure into 2025.”
After a few hours of desultory debate, it was passed by the Dáil later that evening. So far, so boringly technical. Bear with me.
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It costs about €100 billion to run the State this year; more next year, of course. Where does this come from? From the taxation levied on people, businesses and transactions, and so on. “I like to pay taxes,” said the American jurist Oliver Wendell Holmes. “With them, I buy civilisation.” Many of us might be not quite so enthusiastic about the prospect, or wish we paid less, and other people paid more. But we get the principle, all the same.
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Department of Finance projections published at the budget last month showed that the mandarins expect about €36 billion in income tax, €23 billion in VAT, €7 billion in excise duties, €1.7 billion in stamp duty, €1.6 in capital gains tax, about €2 billion in other taxes to be raised next year. And about €34 billion in corporation tax (this includes some of the Apple tax money; non-Apple receipts this year will be about €27 billion).
For several years, ministers for finance and their officials have been warning that the sustained surge in corporation tax receipts – up from about €5 billion 10 years ago to more than five times that amount this year – is likely to abate at some stage, and potentially go into reverse. The rule of thumb has been that up to half of the receipts could be unreliable. This is one of the rationales behind the savings funds set up by the present Government.
Pundits have looked at the last three budgets and said – yeah, look, no political bounce. Actually, I think the bounce has been that there hasn’t been a slump in the government’s support because of the cost-of-living crisis
The election of Donald Trump this week has changed the world. It has also made the prospect of a slump in corporation tax revenues here more likely. There are several ways that could happen: global economic uncertainty leading to halt in investment, the imposition of tariffs leading to a slump in transatlantic trade, the incoming administration’s stated desire to get US firms to return home, along with their profits – all of these things have the potential to clobber the golden goose. There’s not much we can do about this. We’ll just have to wait and see what Trump does, and how the multinationals react.
But there is one thing we can do. We can make sure that all the parties in the general election campaign answer clearly what must now be the most important question that will face whoever forms the next government: what will you do if the corporation tax receipts take a hit? What does next year’s budget look like if you have €10 or €12 billion less? What choices would you make?
Voters will be subjected to endless blandishments over the next three weeks. They will be worthless if Trump squeezes the US corporates. So politicians need to be asked: what then?
The current Government has been able to run big surpluses, deliver large giveaway budgets and still funnel money into the savings funds. This has allowed it to claim the mantle of both prudence and generosity. Contrast that with the situation nearly everywhere else. Western governments – including the one led by Joe Biden – have been monstered by angry voters feeling the pinch of an acute cost-of-living crisis. As John Burn-Murdoch pointed out in the Financial Times this week, “every governing party facing an election in a developed country this year lost vote share”.
But so far, the Irish Government has been able to insulate itself from much of that political fallout. Pundits have looked at the last three budgets and said – yeah, look, no political bounce. Actually, I think the bounce has been that there hasn’t been a slump in the government’s support because of the cost-of-living crisis.
That political insulation from the cost-of-living crisis has been paid for by bumper corporation tax receipts. And now those receipts are under threat.
If there is a sharp reduction in corporation tax, then the next government will have to choose between giveaway budgets, surpluses and the savings funds. And if that reduction continues, it will – like governments everywhere – have to choose between raising additional revenues and curbing spending.
So. Where are the priorities? Where are the red lines? If you have to raise taxes, where would you raise them? If you have to cut expenditure, where would you cut? Would you raid the savings funds to pay for deficits? Will you continue to do “one-off” giveaways? Time for answers.
Finally, as we look forward to the general election campaign, let us all beware the perils of faith-based predictions, of wishful thinking masquerading as analysis. In recent days, I lost count of the normally sane and perceptive observers of American politics insisting that the women and young people of America would elect Kamala Harris. Their hope hardened into certainty. Alas the world is as it is, rather than as we would like it to be.
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