It is tempting to conclude that Ireland has reached the peak of its corporate tax receipts, with revenues of €35 billion in the first eleven months of the year, up 59 per cent on 2023, according to the latest exchequer figures. The total was boosted by the first part of the Apple tax payments following the recent decision of the European Court of Justice, which – notably – accounted for the bulk of the November increase.
With Donald Trump’s imminent entry to the White House, creating uncertainty over future prospects for investment and trade, there is some nervousness about the outlook. On the other side of the equation, the increase in the tax rate on big companies to 15 per cent and the expiry of tax allowances on some of their investments here could boost revenues. The truth is that nobody knows where the balance will lie.
For now, the backdrop for talks on the formation of the next government remains favourable. But the risk remains of an unexpected fall-off of corporate tax receipts, which as the latest report from the Fiscal Advisory Council (IFAC) points out, are hugely reliant on the fortunes and policies of just three or four big companies.
As the council points out, the more the next government relies on windfall revenues to support additional spending, the greater the risks it runs with the public finances. And there is the additional problem of adding money to an economy already at full capacity – which could push up inflation and lead to poor value for money for State funds.
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It comes down to balance. The State has massive investment shortfalls and needs to plan a longer-term programme. The windfall receipts are a significant boost in doing so, but managing this requires thought and planning.
Ireland has the chance to ensure it has enough cash to ride out a downturn in tax revenues by continuing to put away a significant portion of the windfall receipts. State investment spending can also be supported in the short-term, though the next administration must find ways to get projects delivered more efficiently. Ensuring that the vast resources devoted to housing give an adequate return is vital. And the planning and public administration process continues to delay vital investments not only in housing but also in water, wind and the electricity grid.
These are all familiar problems. But unless the planning for the new government tackles them, the risk will remain of under-delivery in vital areas. And unless it puts a strategy in place to cope if the public finances do come under pressure, the next government will be running big economic – and political – risks. The IFAC report has useful suggestions on the way to approach this and the need for some anchor to guide government spending. The party leaders – and their negotiators – should read it carefully.