Government ‘misses out’ on extra €7bn in fiscal space

Ireland has missed out on an additional €7 billion in fiscal space by failing to apply the EU’s fiscal rules correctly, Ibec’s Fergal O’Brien has claimed.

Mr O'Brien told The Irish Times/PwC Tax Summit that by excluding the 26 per cent jump in gross domestic product (GDP) in 2015, the Government had limited spending opportunities at a time of chronic under-investment in infrastructure.

The cost of this in terms of reduced fiscal space for the Government could be in the order of €7 billion over the years 2018 to 2021, he said.

At the time, the 26 per cent jump in GDP was largely derided as an aberration and not reflective of a jump in real economic activity. As a result, the Government used an estimated measure of real growth when it came to the fiscal rules.

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Nonetheless, Mr O’Brien said the fiscal rules as they applied to Ireland failed to appreciate the full substance of the economy and the scale of infrastructure deficits facing the country.

While the European Commission and the Government identify the constraints, they both fail to apply the fiscal rules in a manner which would support increased capital spending, he said.

Tax receipts

Mr O’Brien said the €2.6 billion windfall corporate tax receipts which coincided with the jump in GDP could be for much needed one-off public capital projects.

He said the budget should signal a substantial increase in the level of funding for infrastructure to support the 10-year capital investment plan and the ambitions of the National Planning Framework.

His point was echoed by Niamh Boyle, president of Chambers Ireland, who said addressing the State's infrastructural bottlenecks in housing, water, transport, health and education must be a priority for the upcoming budget.

Global tax

Also addressing the summit was head of tax at PwC Ireland Joe Tynan, who spoke on the shifting sands of global tax.

“There is a huge amount of change in the world of tax, driven by changing business models alongside new G20/EU/OECD proposals aimed at tackling the digital economy as well as global perceived lack of tax transparency,” he said.

“In the main, the purpose of these changes is to ensure that profits will be taxed where real economic activity takes place,” Mr Tynan said.

This would reinforce Ireland’s ambition for a broad base and low corporate tax rate.

However, he warned EU moves toward tax equalisation, targeting giant digital companies based in innovative countries such as Ireland, would not be in the State’s interest.

“It will be very important that Ireland, along with like-minded EU colleagues, work together with international tax policy decision makers including at EU and OECD levels, to ensure Ireland’s viewpoint is heard and any new proposals do not undermine our tax system,” he said.