The Treasury Department’s annual tax report contains two different messages. The first is that tax revenues held up remarkably well during the pandemic due to the unusual nature of the economic blow. The second is the increasing reliance on corporate tax revenues, more than half of which are now paid by just 10 large corporations. This is rightly identified as a “significant risk to public finances”.
When the pandemic hit in late February 2020, there were fears of significant damage to public finances. Public spending has indeed risen massively as a result. But tax revenues were surprisingly robust and at the end of 2020 were only 3.6 percent below the previous year. This contrasts with a drop in tax revenues by a third after the financial crash.
It is noteworthy that personal income tax receipts only decreased by 1 percent in 2020, as job losses occurred almost exclusively in sectors with relatively low wage rates and thus limited tax revenues. In contrast, more highly paid industries remained in operation. There has been a sharp drop in spending taxes, with VAT revenue falling 18 percent each year.
Corporate tax revenues are now closely tied to the assets and decisions of a small number of primarily US companies
The numbers were bolstered by another record year in corporate tax revenue, which was nearly € 12 billion and one in every € 5 of taxes collected. The rise in corporate taxes, fueled by rising contributions from some large corporations, has given the treasury vital support.
However, it also indicates a vulnerability for the future. As the report shows, corporate tax revenues are now closely tied to the assets and decisions of a small number of primarily US companies. The multinational sector also tends to pay higher wages and job losses in this area would quickly lead to lower income taxes.
Treasury Secretary Paschal Donohoe has a $ 2 billion drop in annual corporate tax revenue by 2025. A significant portion of our annual tax revenue now depends on the outcome of those talks and the response of large multinational corporations. This risk must be taken into account in important decisions on the 2022 budget.