Irish economy may start overheating before end of 2019, warns think tank

Disorderly Brexit or other negative external shock could prevent overheating

The Irish economy could begin overheating by the end of 2019, the left-leaning think tank the Nevin Economic Institute has predicted.

The institute's senior economist Tom McDonnell told the Oireachtas Budgetary Oversight Committee that only a shock event would prevent that happening.

“The institute’s interpretation of the available evidence is that the Irish economy is not yet overheating. However, this is likely to change before the end of 2019, unless there is a negative external shock such as a disorderly Brexit,” Mr McDonnell said in his opening submission.

The committee, chaired by Fine Gael TD Colm Brophy, is hearing submissions in advance of the 2020 Budget in October.

Mr McDonnell said the fiscal position was reasonably solid and that baseline growth of 4.5 per cent was feasible over the 2020s. He added there were risks, such as a no-deal Brexit and the sustainability of corporation tax receipts. He also instanced other influencing factors such as climate change, housing shortages and homelessness, and an ageing population.

“This suggests a more cautious fiscal stance until we have greater certainty in relation to the future levels of revenue,” he said.

The institute, he said, wanted the Government to “abandon populist attempts to cut taxes”. It has also argued for new taxes on capital, particularly on wealth.

Tax take

The committee also heard from Social Justice Ireland (SJI). Its director Fr Seán Healy said it also opposed tax cuts and that the next budget should focus on increasing Ireland's total tax take. He suggested that €3.5 billion in additional revenue would be necessary to deliver a fair and equitable budget.

His SJI colleague Eamon Murphy said several large multinational companies were paying well below the 12.5 per cent headline rate for corporation tax.

Responding to questions from Jonathan O’Brien of Sinn Féin, he said the SJI recommended a minimum rate of 6 per cent to make sure multinational companies were making a fair contribution.

Mr Murphy also criticised the fact that Irish banks continued to benefit from a corporation tax holiday. He said there should be new rules that would limit the ability of corporations such as banks to carry their losses for 10 years. He said that reducing that break to 50 per cent of losses would yield €100 million in revenue in 2020 alone. In the interest of fairness, he said, bank levies would need to end if that measure was introduced.

“The banks roll losses forward and penalise Irish tax payers on the double for actions taken in the 2000s.

“They should now start making a proper contribution back to society and play a leadership role,” he said.

Mr McDonnell told the committee there would be a change in the corporation tax regime over the next decade, as the prospect of a common consolidated corporate tax base across Europe becomes more real.

He said the institute reckoned the revenue loss to Ireland could be in the order of €2 billion, a lower figure than that projected by the Irish Fiscal Advisory Council.

Harry McGee

Harry McGee

Harry McGee is a Political Correspondent with The Irish Times