Corporate Tax

We have to wean ourselves from unsustainable corporate tax revenues

One in every 5 euros the Irish government received in 2020 came from corporate taxes paid by companies operating in Ireland. If over 80% of this money comes from just 10 multinationals, an urgency debate needs to start in our country. Such alarming conditions should force us to really think and ultimately make a major correction.

11.8 billion euros per year is a lot of money. Corporate tax revenue finances many important services that the state rightly provides to citizens – health, education, and social protection, to name a few.

It must now be accepted by all that the current spending plans of the Irish government are far too dependent on this source of income staying at this level and even growing. The untenability of this reality is well known to most economists and has been emphasized repeatedly by the European Commission in recent years.

Corporate tax revenue is one of the most volatile forms of funding a government can rely on. Just look at what happened in the late 2000s when that revenue fell from € 6.39 billion in 2007 to € 3.9 billion in 2008 (with a further decrease to € 3.52 billion by 2011).

Ireland’s competitiveness as a business environment is also a very important factor. Many companies today are very mobile and could relocate their business to another location with relative ease. Not to mention the ongoing global discussions about introducing a minimum global corporate tax rate.

Ireland remains a very attractive location for business start-ups and foreign direct investment. We are known, among other things, for our stable legal system, our English language skills, our educational system, our pharmaceutical and technological expertise, our geographic location, our longstanding and ongoing membership in the European Union and, of course, our welcoming manner.

Still, we shouldn’t remain in such a fragile position where we base our current spending commitments on the assumption that our corporate tax revenues will remain high.

Fund for rainy days

Fianna Fáil rightly proposed in her 2016 election manifesto that corporation tax revenues of more than 6.6 billion euros be included in the Rainy Day Fund.

We can all discuss where this additional income should go, but I think we all agree that it should not be used to pay for additional daily running expenses because they fear that it will decline quickly in the future.

The keys to fiscal success are stability and security – knowing that we have the means to pay for essential public services unless World War III suddenly starts or another global pandemic hits our planet.

As governments around the world make strides towards consensus on a global minimum corporate tax rate (GMCT) – which Ireland up to $ 2.5 billion in current daily expenses. In the long term, it is neither sustainable nor prudent.

The full and final effects of a GMTC have yet to be determined, but we can safely say that our corporate tax revenues will more than likely decline. How far they will come by is still unknown.

Should the Irish government therefore make long-term, ongoing spending commitments based on a potentially significantly depleted source of income?

I don’t think so, and I think we should take Michael McGrath’s advice from 2016 to limit the use of corporate tax revenue over several years to ensure that there are no cliffs on ongoing spending of $ 6.6 billion.

Investing in Ireland’s Future

At that time, Mr. McGrath wanted to pay off the national debt with additional income. I think a better option would be to use this money to fund a significant investment in Ireland’s future.

We invest in the big, bold and innovative projects Ireland needs to meet the challenges of the 21st century.

Spend the money on investment projects that will prepare Ireland for the future. Invest in offshore wind farms, invest in the fastest broadband to reach any community, or invest in a national methane stove network to reduce the net emissions from our dairy herds.

All of these activities will boost the economy by creating jobs. However, none of them add annual costs that the state must commit to paying when providing services.

We have a very tight window of opportunity to make our corporate tax revenues sustainable over the long term. The further we go down this path, the more painful future reorientation will be for our citizens. We have a duty to act now.

  • Billy Kelleher is Fianna Fáil MEP for South Ireland and a member of the European Parliament’s Economic and Monetary Committee and Subcommittee on Taxation

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