Corporate tax under threat as IMF warns of slow growth

It would have a ripple effect on the profits of the world’s biggest companies, many of which have their European headquarters in Ireland and pay billions in tax here.

“It seems more likely than not now that the United States will enter a recession,” said Dermot O’Leary, chief economist at Goodbody.

“[Corporate] earnings forecasts are still growing, but this is unlikely given the contraction ahead. I think this will affect corporation tax over the next 12 months.

Global real GDP growth will slow to 3.2% in 2022 from a forecast of 3.6% released in April, the IMF said in an update to its World Economic Outlook.

The Fund also cut its 2023 growth forecast to 2.9% from April’s estimate of 3.6%, citing the impact of tighter monetary policy.

Global growth had rebounded in 2021 to 6.1% after the COVID-19 pandemic crushed global output in 2020 with a contraction of 3.1%.

“The outlook has darkened considerably since April. The world could soon tip to the brink of a global recession, just two years after the last one,” IMF chief economist Pierre-Olivier Gourinchas said in a statement.

Several Silicon Valley companies that are big Irish employers, such as Google and Meta, have already put in place hiring or layoff freezes in anticipation of a downturn.

US tech and pharmaceutical companies are the biggest contributors to Irish corporation tax, with the top 10 companies paying over 50% of the total.

So far, corporate taxes show no signs of slowing down. According to figures from the Exchequer for the half-year, corporate taxes rose by almost 53% to 8.8 billion euros, putting public finances on track for a surplus by the end of the year. year.

But there have been numerous warnings, from the Central Bank, the Irish Tax Advisory Board and even the Department of Finance itself, that the government should not rely on the sustainability of these windfall gains.

The IMF said its latest forecast was “extraordinarily uncertain” and subject to downside risks from Russia’s war in Ukraine, pushing energy and food prices higher. This would aggravate inflation and entrench longer-term inflationary expectations that would incentivize further monetary policy tightening.

In a “plausible” alternative scenario that includes a complete cut off of Russian gas supplies to Europe by the end of the year and a further 30% drop in Russian oil exports, the IMF said growth would slow to 2.6% in 2022 and 2% in 2023. , with near-zero growth in Europe and the United States next year.

Global growth has only fallen below 2% five times since 1970, according to the IMF.

Additional Reuters reports