Ireland too dependent on corporation tax, says IFAC

Ireland must reduce its reliance on corporation tax and take a cautious approach to it, said the chairman of Ireland’s Tax Advisory Council.

Sebastian Barnes told the Oireachtas Budget Watch Committee that it is still very unclear what will happen politically internationally and in the United States with ongoing negotiations around a global agreement on corporate tax and things could change.

But he said a potential impact of a change would be a loss of corporation tax, which the government says could be around 2 billion euros, but IFAC estimates could be as high as 3 Billions of Euro’s.

He also said there could be an impact on the economy as some businesses might pull out, although that seems relatively unlikely, or other new businesses might not come here as they deem Ireland less attractive.

He added that what makes the situation very difficult is that corporate tax revenues are very concentrated around a small number of companies, which makes it very difficult to predict what the effects will be.

As a result, he said, Ireland needs to reduce its reliance on the tax because there are a lot of risks there.

“A lot of money comes from a relatively small number of sources where things could change relatively quickly,” he said.
Labor Funding spokesman Ged Nash asked Mr Barnes if he thought the government should revise its figures for the potential loss that would arise from changes to the global corporate tax system.

The IFAC boss said it was remarkable that the overall level of corporate tax revenue was significantly higher than a few years ago and that those figures continue to be very high.

As a result, he said some of that extra money may well be at risk.

“So maybe those risks have increased, but it’s really very hard to say, so I think the only thing to do is to take a relatively cautious approach,” he said.

Mr Barnes also told the committee that, in the council’s assessment, the government’s €4.7 billion budget package appears to be on the edge of what is prudent.

He added that beyond next year, the government should prioritize between its plans for a significant expansion of public investment, rapid increases in current spending and a desire to cut taxes.

“By expanding all areas at once, the government is effectively avoiding hard choices and slowing the return of debt ratios to safer levels,” he said.

“This reduces the possibility of ensuring that future downturns or crises could be cushioned by strong fiscal support in the same way as we have seen during the pandemic.”

“A more cautious approach would be to limit current spending to a slower rate of increase or not to implement tax reduction plans at the same time that an increase in public investment is underway.”

Mr Barnes also said he recognizes the need to invest in infrastructure when interest rates are low.

But he said there were questions about the ability of the economy to catch up at this speed and that it needed to be managed with caution, adding that it carried risks.

He said the government had failed to explain how managing persistent multi-year deficits was in line with EU fiscal rules.

At first glance, he said, this does not seem coherent, but the government should explain what its strategy is.

“There may be special circumstances relating to the high level of investment that Ireland expects in the coming years, but at the moment EU rules essentially do not take this into account,” he said. he declares.

On housing, Mr Barnes said the government needs a much better economic assessment of what it plans to do under the housing for all strategy and the resulting impacts on rents and house prices.