Shock to Ireland’s corporation tax base ‘inevitable’

Vital receipts from business levy are volatile and highly concentrated, says top economist

About 40% of the revenue generated from corporation tax comes from 10 companies. Photograph: Getty Images

About 40% of the revenue generated from corporation tax comes from 10 companies. Photograph: Getty Images

 

A shock to the State’s corporation tax base, which generated a record €8 billion last year, is more or less inevitable, economist Seamus Coffey has warned.

He said receipts from the business levy were likely to fall at some point in the future. And this would happen because they were “inherently” volatile and, in Ireland’s case, highly concentrated around a small number of companies.

“We should not be surprised, or taken by surprise, when this happens,” the chairman of the Irish Fiscal Advisory Council told the Oireachtas Committee on Budgetary Oversight.

“In the near term, the reason for the fall is likely to be the inherent volatility which is a feature of our corporation tax receipts rather than any structural shift or change,” he said.

About 40 per cent of the revenue generated from corporation tax in the State comes from just 10 companies, the bulk of which are US multinationals.

The Government has been warned repeatedly not to rely on current corporate tax buoyancy, which accounts for about 16 per cent of its annual tax take, to fund permanent spending measures. The most recent note of caution was struck by by the International Monetary Fund.

Mr Coffey said his comments did not contradict his previous assessment that the “level-shift” increase seen in corporate tax in 2015 was sustainable over the medium term. This is a conclusion he made in a Government-commissioned review of the tax last year.

“There is nothing that has happened in the interim, either at EU, US or OECD [The Organisation for Economic Co-operation and Development] levels, that would alter that conclusion,” he said.

However, the University College Cork economist noted that his conclusion was made in the context of the 2016 out-turn for corporation tax of €7.3 billion.

“It was not known that 2017 receipts would exceed €8 billion and that forecasts would include projections showing receipts reaching €10 billion by 2021,” he said.

Seamus Coffey: while we identify corporation tax as a risk “getting all this money is a positive”. Photograph: Dara Mac Dónaill/The Irish Times
Seamus Coffey: “I assume we'd like to get the receipts for as long as we can.” Photograph: Dara Mac Dónaill/The Irish Times

Mr Coffey said while we identify corporation tax as a risk “getting all this money is a positive”.

He added: “I assume we’d like to get the receipts for as long as we can. But we should be building into our fiscal policy that these receipts might not be sustainable into the long term.”

Mr Coffey said while corporation tax receipts had remained relatively stable there had been significant volatility within the figures.

He noted that receipts from the largest 10 payers in 2015 came to €2.8 billion while these same companies paid €2.25 billion in 2017. Conversely, the top 10 payers in 2017 paid €3.2 billion compared with the €2.3 billion these companies paid in 2015.