The loss to Ireland of just one of the bigger multinationals would leave the State nursing a €276m tax shortfall, according to the Government’s budget watchdog.
The Irish Fiscal Advisory Council’s (IFAC) Fiscal Assessment Report for June 2018, published today, includes an illustration of the vulnerability of the tax system.
In a modelled example, researchers found that the loss of one of the top 10 tax-paying corporations would mean €276m a year less being paid in corporation tax – almost 4pc of the €7.3bn total.
The impact on payroll taxes and earnings, even of a loss of 2,000 jobs, would be far less serious to the wider economy, they noted.
The IFAC was established in 2012 as an independent watchdog to monitor budgets. In its latest assessment, chairman Seamus Coffey warned that a key improvement in the public finances – the primary balance that tracks the difference between spending versus revenue raising when interest is excluded – has stalled since 2015.
Since then, additional State revenues – including extra tax and other income – has been absorbed by greater spending, he said.
The scale of that trend was evident by tracking-stability programme updates (SPU), the Department of Finance’s key budget setting document.
“In each iteration of the SPU the level of spending has been revised up,” Mr Coffey said.
The result was that planned primary balances had shown little change, even as tax and other revenues increased.
In 2015 the balance that was expected by 2018 would have been €8bn, but spending increases in the interim mean it will be just €4bn.
Mr Coffey, an economist at University College Cork, said the economy was not overheating, but that “talk of over-heating pressure is not misplaced”.
“The Government should at least stick to its [tax and spending] plans for 2019 and anything more expansionary is not likely to be appropriate,” the Fiscal Council report said.
The bulk of the €3.5bn of so-called fiscal space – the capacity to reduce taxes or hike spending – is already accounted for by existing commitments, Mr Coffey said.
Unexpected increases in tax revenue or lower interest rates on the national debt should not be used to fund spending increases, he said.
A sharp revival of house building – something IFAC would welcome and has been expecting – could prompt overheating if counter measures weren’t adopted, he said.
Any tax bonanza from a housing revival should be treated as a one-off – and used to reduce the national debt or directed into the planned rainy day-fund, he said.
IFAC was supportive of the idea of a rainy-day fund, which Finance Minister Paschal Donohoe plans to introduce at the Budget.
However, Mr Coffey said the idea needed to be better developed, including tweaking EU budget rules so it can be used to fund stimulus when the economy is in trouble.
Department of Finance figures yesterday showed the State collected a record €20.5bn in taxes in the first half of the year, but higher spending meant an Exchequer deficit of €24m for the period compared to a surplus of €383m at the same time last year.
Overall, total net voted expenditure to the end of May was €19.336bn, below profile but up €1.5bn compared to the same period last year. Non-voted expenditure was €4.554bn, up year-on-year by 7.6pc or €320m, including higher EU contributions.
Article Source: http://tinyurl.com/kbwqb42
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