Donohoe insists corporation tax base is ‘stable’

Minister says he does not expect to see current growth in the tax to continue

 Minister for Finance  Paschal Donohoe at the  Dublin Economics Workshop in Wexford. Photograph:  Conor McCabe Photography

Minister for Finance Paschal Donohoe at the Dublin Economics Workshop in Wexford. Photograph: Conor McCabe Photography

 

Minister for Finance Paschal Donohoe has insisted the State’s corporation tax base is “stable” despite the high concentration of receipts around a handful of firms and the potential threat from changes to the US code.

Addressing the annual Dublin Economics Workshop conference in Wexford, Mr Donohoe said he does not expect to see the current level of growth in the tax to continue into the future.

Since 2015 corporation tax income has doubled to over €8 billion, and now accounts for 16 per cent of the Government’s total tax-take, a high level by international standards. About 40 per cent of the revenue generated comes from just 10 firms, understood to include tech giants Apple, Microsoft, Dell, Google and Oracle.

The Government has been warned repeatedly not to rely on current corporate tax growth to fund permanent spending measures given the increasingly uncertain outlook internationally.

“As it stands now the corporation tax base is stable,” Mr Donohoe said. However, he said he would not be projecting, from 2019 and beyond, the kind of growth witnessed in recent years. “I think we’ve got to a point that if it grows further it’s more likely to be in line with growth that we have seen in other tax heads.

Rainy day fund

“My department has already acknowledged that the concentration of corporation tax within a certain number of companies is something we need to be conscious of.”

Mr Donohoe said the Government’s rainy day fund and its plan to run a small budget surplus in 2019 could be seen as attempts to insulate the exchequer from future shocks, including a downturn in corporation tax income.

Earlier this month, the Irish Fiscal Advisory Council warned the Government that an “adverse shock” to the economy from Brexit, Donald Trump’s protectionist trade policies or changes to the international tax environment was now inevitable.

In its pre-budget statement the State financial watchdog said an “earlier-than-planned move” to running a small budgetary surplus may be warranted, particularly if growth and tax exceed expectations this year.

The warning echoed comments in the same week by Central Bank governor Philip Lane, who called for more financial resources to be set aside as a buffer against future economic shocks.

On Friday, Mr Donohoe was tight lipped on the budgetary measures likely to be announced next month.

Special VAT rate

While he has roughly €800 million for new tax and spending measures, he is expected to raise some taxes to bring his budget day package above €1 billion. The removal of a special 9 per cent VAT rate for the hospitality industry, for some areas of the sector at least, and hikes in carbon taxes are seen as the most likely moves.

He said prior to the budget the Government would assets its tax-take on the basis of September’s exchequer returns, due out at the beginning of October, and “revise and re-evaluate” how the economy was performing. “That will offer a final rechecking of where those parameters are.”