Large share of corporation tax that Ireland collects could be "temporary"

Large share of corporation tax that Ireland collects could be

In its latest Fiscal Assessment Report published this morning, the Irish Fiscal Advisory Council tries again to warn of the potential risks that Ireland faces in its public finances over the coming years.

The report warns that while Ireland is complying with fiscal rules, specifically in relation to its medium-term objective of a structural budget balance of -0.5% of GDP, it is only achieving this due to excess corporation tax receipts that may prove "unsustainable."

Furthermore, the report warns that there has been a deterioration in the structural budget balance over recent years despite revenue overshoots. The Council repeats its message that a large proportion of the corporation tax that Ireland collects could prove to be temporary. It estimates that the “excess” tax paid could amount to between €2bn-€6bn. This amounts to 1%-3% of gross national income (GNI).

In the context of potential changes to international tax rules in the coming years due to the OECD BEPs process, Goodbody Stockbrokers say the Council is correct in warning of these risks.

According to Goodbody Stockbrokers, "This is just the latest in a series of warnings from IFAC, who have been commendably fulfilling their duty and shouting it from the rooftop. One could argue that government spending increases would have been larger in recent years were it not for its interventions. Possibly, but it still holds true that spending growth has been in excess of what one might describe as prudent over recent years given the potential risks to one important source of funding for that spending." 

They added, "With tax changes likely to come over a number of years, the government still has time to enact some of the prudent proposals that IFAC is suggesting. The early period following the next election would be an opportune time to do just that."