Minister for Finance Michael McGrath faces a tricky challenge in communicating the Coalition’s financial position. On one level, he wants to temper expectations (from various departments and the public itself) that the Coalition’s fiscal headroom is big or that the Coalition has a large pot of corporation tax at its disposal. This at a time when corporate tax netted the exchequer a record €23.6 billion last year.
Hence he never misses an opportunity to warn about the “inherent unpredictability” of the business tax and the dangers of tying it into current spending.
McGrath, like any self-respecting minister for finance, also wants to portray himself and the Government as fiscally prudent. That means resisting calls on the public purse and keeping to budgets. In an election year, that typically clashes with the Government’s political agenda of wooing the electorate with a generous budget.
Part of the prudent image also means pretending the Government’s healthy €8.3 billion budget surplus last year (highlighted in the latest finance numbers published by the Central Statistics Office on Friday) is a reflection of the Coalition’s careful management of the public finances.
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That’s difficult when everyone can see that the Government would be running a sizeable fiscal deficit without the extraordinary corporate tax bonanza at the heart of the exchequer which it has little to do with.
And then there is the international dimension. Ireland has been tagged as a tax haven for its low corporate tax rate and for facilitating aggressive tax planning by multinationals. The adoption of a global minimum rate of 15 per cent under the OECD’s BEPS (Base erosion and profit shifting) process has to some extent neutralised this attack.
But if Ireland’s corporate tax pot expands significantly under a new global minimum rate (and it is predicted to do so), the Government could encounter further flak. So while McGrath wants to highlight the Government’s healthy fiscal position, he doesn’t want the focus to fall on corporate tax. That’s a tricky balancing act.
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