There is a “double risk” to Ireland’s corporation and income tax takes if there is a shock in the tech sector, the Dáil’s public spending watchdog has been told.
The Department of Finance’s chief economist John McCarthy also said there is a risk to the level of corporation tax Ireland will take in next year and in 2024.
He made the remarks at the Public Accounts Committee (PAC) on Thursday in response to questions from Fianna Fáil TD Paul McAuliffe.
Mr McCarthy said a “very strong increase” in corporation tax is expected this year – up to €21 billion or €22 billion from €15 billion in 2021. “I’m all not at all worried about this year. I’m more worried about later years, especially if there is a shock to the ICT sector,” he said.
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Mr McCarthy said there is a “correlation between income tax and corporate tax” and there are a lot of high-income jobs in the tech and pharma sectors. “So there’s a kind of a double risk so to speak,” he added.
Mr McCarthy said that 500,000 workers and 10 companies account for 36 per cent of total tax in the country. “To put it another way, the top 25 per cent of earners pay 80 per cent of income tax,” he said, adding that it is “a very narrow base, very concentrated”.
Mr McCarthy said the department has taken a slowdown in the tech sector into account since Budget 2023. “It’s fair to say the correction in the sector has maybe been a little bit stronger than we might have thought,” he said. “I would say there’s certainly a risk to 2023 and more likely the 2024 corporate tax number.”
Mr McCarthy said some “resilience” is being built up through an exchequer surplus this year and the targeting of another one in 2023. He said Minister for Finance Paschal Donohoe also decided to capitalise the national reserve fund – also known as the ‘Rainy Day fund’ – with €2 billion being put into it this year and €4 billion in 2023.
“We will have that little bit of a fiscal buffer to be able to absorb, at least to some extent, the shock,” he said.
Earlier, the secretary general of the Department of Finance, John Hogan, said Ireland is approaching forthcoming economic difficulties “from a position of relative strength” compared to other countries. He said Ireland has “strong public finances” while conceding some of this is due to corporation tax receipts.
Mr Hogan said there will continue to be an increase in corporate tax receipts “in the forthcoming time” but the department has been “consistent in terms of identifying the potential risk to it”.
Separately, Social Democrats co-leader Catherine Murphy asked about the expected net loss to the State expected once the Irish Bank Resolution Board (IBRC) is fully liquidated.
IBRC was established during the economic crash and bank bailout from the merger of bust lenders Anglo Irish Bank and Irish Nationwide. It was put into liquidation by the Government in 2013.
Des Carville, the Department of Finance head of share-holding and financial advisory division at the Department of Finance, said about €35 billion went into the bank and there are around 10 assets left to sell. He said: “If I was to put a number on it for you I think the recovery from IBRC will be less than €1 billion, so a €34 billion loss.”
Mr Carville said four assets are in Russia and Ukraine and they cannot be sold amid the ongoing war.
The PAC was told that liquidation and legal fees have so far come to €300 million, and it is estimated that there will be between €16 million and €20 million more spent before the process is complete. The end of 2024 has been set as a target date for the completion of the liquidation.
