Tax advice warns against reliance on corporation tax

Budget watchdog the Fiscal Advisory Council said strong corporate tax revenues “should not be relied upon to fund permanent increases in spending”.

The council made its comments in a series of tweets last night in response to the government’s summer economic statement released yesterday.

The government’s summer economic statement confirmed plans to unveil €6.7 billion in new spending and tax measures on Budget Day, brought forward to September 27.

Windfall corporate tax revenues have improved the outlook for public finances and the government now expects a surplus of around €2 billion this year and around the same amount next year.

Without these business receipts, this year’s deficit could be in the region of 7 billion euros, according to government figures.

The Summer Economic Statement itself refers to “a clear vulnerability of public finances” to the “risk of concentration” of ten multinational companies which now pay half of corporation tax and one on €8 collected from tax.

The Tax Council said these corporate tax revenues “should not be used to finance permanent increases in spending”, but should be placed in a new Rainy Day fund.

He warned that uncertainty about the economy remains very high and that there are significant downside risks to growth.

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But much of the increase in tax revenue reflects strong corporate tax revenue. These should not be used to fund permanent increases in spending. Overreliance on corporation tax should be reduced through contributions to the Rainy Day Fund or a new pension reserve fund.

— Irish Tax Advisory Council (@fiscalcouncil) July 4, 2022

But he called it “reasonable” to leave some leeway to move away from the 5% spending rule when inflation is so high.