More than half of government corporation tax revenue could be ‘unsustainable’ – The Irish Times

As much as €8bn, or just over half of the government’s corporate tax revenue, could be “unsustainable” or at risk, the Central Bank has warned.

In its latest quarterly bulletin, the regulator said corporate tax volatility and its concentration among a small number of multinational companies was now one of the main threats to public finances.

He noted that business tax revenue reached a record 15.3 billion euros last year, 40% more than in 2019, while half of the revenue came from just 10 large companies, creating “considerable concentration risk”.

[ Inflation to go above 10%, Central Bank warns ]

The Central Bank has calculated that if the business tax base had increased in line with the underlying economic activity here, some €8bn of revenue collected last year might not have been realized. .

“The difference between this estimate from the Central Bank of Ireland and the actual corporation tax result can be taken as a measure of windfall revenue and can also be instructive in providing an estimate of the share of the recent influx which could be considered potentially unsustainable,” it said.

The regulator warned that if some of these large companies were to relocate for tax purposes, or in the event of a negative shock to specific large sectors such as ICT or pharmaceuticals, this could have a significant negative impact on the budgetary situation. of the government.

“The reason for this is that all the increase that has been recorded up to this year has been allocated to permanent expenditure,” said Mark Cassidy, director of economics at the Central Bank. “If there was a reversal, it would be very difficult to replace this type of funding.”

Earlier this week, the government signaled in its summer economic statement that it was likely to record a budget surplus of around €2 billion this year. However, he noted that this development was largely due to excessive corporate tax revenues and that without them, it risked running a deficit of around €7 billion.

The government statement highlighted “a clear vulnerability in public finances” due to the “concentration risk” of 10 multinational companies which now pay half of corporation tax and one in €8 collected in tax.

The Central Bank is advocating placing the additional business tax revenue in a rainy day fund, a plan the government has repeatedly postponed.

In its latest bulletin, the regulator revised its consumer price inflation forecast upwards due to further energy price hikes, suggesting that price growth will reach more than 10% in the coming months. , which would put additional pressure on household budgets.