Windfall corporate tax revenue means our rainy day fund is vital

It’s a crude analogy, but compare Ireland’s tax windfall to a graphic designer earning a steady salary – but a few years ago he developed a side hustle. The designer excelled in getting those extra gigs and earned a reputation among a small group of clients as being very good at the job.

What started with a few thousand more per year has grown and grown. Even when it seemed like the taxman was cracking down on this extra income, the money kept coming.

Is this bargain a problem? The designer knows there is a risk that customers will move on when the time comes. The extra money is therefore a godsend, a chance for the designer – who must take credit for being good at what he does.

The day may come when this amount of extra cash will drop significantly. The only way this is negative for the individual’s finances is if the extra cash becomes necessary to meet their day-to-day expenses – and nothing has been spared for that inevitable rainy day.

Going back to Ireland’s over-reliance on corporate tax from FDI, the windfalls were extremely lucky for our economy.

The phrase “overdependence” suggests that perhaps the Irish economy should try to rebalance itself and stand on its own two feet.

But there is no way our national economy can balance the billions in surplus generated by the FDI tax. The only thing that can be done is to consider cash somewhat separate from basic income, limit spending, and save for that bad day.

Politicians are under increasing pressure to support the population, and as we move from crisis to crisis, saving billions for guesswork hasn’t really been feasible.

However, our “overreliance” on corporation tax weighs on the minds of political advisers, particularly given the nervousness over Big Tech’s long-term commitment to Ireland, as well as from their own perspectives.

A recent document from the Ministry of Finance, Mitigating Risks to Public Finances: Assessing Corporate Tax Revenuesaddressed the issue, stating that “an over-reliance on ‘windfall’ corporate tax revenue poses a clear risk to the stability of public finances”.

Finance Minister Paschal Donohoe last week estimated that the corporate tax ‘excess’ – i.e. the amount that could be most vulnerable to a shock – could reach £10 billion. euros.

The Finance Ministry report says it is not possible to estimate the level of windfall revenue “with any degree of accuracy”. After slicing and chopping the numbers, he set himself a midpoint of around €4 billion to €6 billion last year.

He points out that the rainy day fund was initially capitalized with a €1.5 billion transfer from the Irish Strategic Investment Fund. The plan provided for annual transfers of 500 million euros from the Treasury from 2019 to 2023, as well as other transfers decided by the Minister of Finance, with the support of Dáil Éireann.

The economic impact of Brexit and Covid meant that none of the €500m transfers, or any other, were made. The fund’s restart plan is cautious – but the challenge for politicians now will be to resist dipping into it, as the crises seem to keep coming.

Maith sibh TG4, you make RTÉ jealous

The media did quite well with last week’s budget, with news groups particularly pleased to see their campaign to cut VAT from 9% to zero finally pay off.

These are challenging times for our industry, accentuated by soaring newsprint costs, as commercially successful digital models continue to find their way.

RTÉ is to receive 15 million euros, as recommended by the Future of the Media Commission. It’s only a temporary boost, but it’s a good omen of what could happen.

But we have to say hats off to TG4 – who managed to get €7.4m into the budget.

The Irish-language station has been very successful in recent years in securing additional funding – and this amounts to a top-up of 16.5%. He also earned €4.2m last year and €3.5m in 2020. RTÉ must watch him with envy.