One-eighth of the State’s annual budget – the budget that funds public transport, builds roads and social housing, pays teachers’ and nurses’ wages and funds weekly welfare and pension payments – now comes from just 10 large US firms. These are thought to include Facebook, Google, Apple, Microsoft, Pfizer, MSD, Johnson & Johnson and Intel.
This is a very peculiar and very precarious manifestation of globalisation that is not replicated anywhere else in the world. Take the Government’s likely €2 billion budget surplus this year. This healthy fiscal position would morph into a €7 billion deficit without the excess corporate tax receipts, entirely dissolving the Coalition’s cost-of-living strategy in the budget.
By the year’s end, corporate tax will be the second-largest source of revenue for the State, eclipsing VAT for the first time. On the basis of the €8 billion generated so far this year, business tax receipts are now expected to net the exchequer €19-€20 billion in total in 2022, up from last year’s record €15.3 billion total. A decade ago, VAT receipts dwarfed corporation tax. But the onshoring of multinational assets here plus a hike in multinational profitability generally has changed that and handed the Government a veritable windfall.
Concentration risk
With the Central Bank suggesting that as much as €8 billion of last year’s haul might be unsustainable long term, the concentration risk at the heart of the State’s finances is considerable. And the warnings are coming thick and fast.
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The sensible thing to do would be place the additional receipts – or a significant portion of them at least – to one side in a rainy-day fund: instead the Government has used them to shore up permanent expenditure, a throwback to when tax windfalls from the property sector were used for fund permanent expenditure in the pre-2008 period.
Events keeps getting in the way of the rainy-day fund plan, which the previous administration had signed up to but later deferred. First Brexit posed too big a risk, then came Covid and now we have the cost-of-living crisis. Politically, it seems, it’s never a good time to save but surely a record €19-€20 billion tax haul this year provides a gilt-edged opportunity.
