Corporate tax take proves merit of low rates, Varadkar says

Fine Gael leader Leo Varadkar has said Ireland’s surging corporation tax receipts are evidence that the State’s low-tax regime on company profits works.

But he added the Government should set some of the increase in corporation tax receipts aside – either in a rainy-day fund or to bolster the social insurance fund from which State pension and other welfare payments come.

Speaking in Galway where he opened a new office for software firm Diligent and formally announced the creation of 200 R&D jobs at medtech giant Medtronic, the Tánaiste said it was “a really good thing that we receive billions of euro of tax on profits from companies that are based in Ireland”.

“I remember not that long ago people used to complain that corporations weren’t paying enough tax,” he said. “I remember that mantra from people before and now it’s very clear that companies pay a lot of tax in Ireland: pretty much one in four of every euro that we take in in tax comes from company profits.

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“It proves that low taxes work. I know there are some people who subscribe to this ideology that higher taxes always means higher revenues [but] that’s not true [and] this is a perfect example of where low taxes encourage enterprise and therefore create more revenues,” he said.

He said this was one of the reasons why he would like to see tax on income lowered “because it helps to reward work and encourage work and I think that the case is now proven that lower taxes can result in higher revenues – not always, but in particular circumstances”.

Recent figures from the exchequer show corporation tax delivered €8.8 billion in the first half of the year, more than 50 per cent up on last year’s total.

‘Concentration risk’

However, the Central Bank has warned that as much as €8 billion, or just over half of the Government’s corporation tax receipts, might be “unsustainable” or at risk. It noted that corporate tax receipts had jumped to a record €15.3 billion last year, which was 40 per cent up on the 2019 figure, and that half the receipts came from just 10 large companies, creating what it called “a considerable concentration risk”.

The Central Bank’s director of economics, Mark Cassidy, said all of the recent surge in corporate tax receipts had been allocated to permanent expenditure by the Government, which he said was a concern.

Asked whether the Government was becoming overdependent on windfall tax revenues, he accepted there was a “vulnerability” when so much tax comes from one source.

He said the Government was recognising that in two ways. First, he said, it was investing heavily in infrastructure, “things you only have to build once, so €3 billion on the National Broadband Plan, for example, the metro project in Dublin, social housing all over the country, new schools, new hospitals” that would not require recurring expenditure apart from on maintenance.

“The other thing which we probably will do, although we have to make a decision on this as a Government, is that if there’s a surplus this year in our budget, we’re going to give some of that back to people to help them with the cost of living as we should.

“But we should set some of that aside as well, either in a rainy-day fund or in the social insurance fund.”

The Tánaiste said a decision would be made on those issues in the budget in September.