At the press briefing announcing the latest exchequer returns on Wednesday, the Department of Finance’s chief economist, John McCarthy, said his department estimated that about 50 per cent of the State’s €24 billion annual corporate tax take could be classified as “windfall” and potentially “non-recurring”.
That means we’re accruing €12 billion in business tax receipts that are effectively divorced from the underlying performance of the Irish economy and which could, just as easily as they arrived, disappear. How this unexpected windfall is spent could be crucial to the future development of the State. It is also a once-in-a-generation opportunity to make a lasting difference to some of the country’s nagging problems. Here are six possible ways Minister for Finance Jack Chambers could deploy this largesse.
Abolish USC
Brought in as an emergency measure in 2011 in the wake of the financial crisis, the universal social charge (USC) was meant to be a temporary expediency in the face of a financial meltdown. Like many other so-called temporary measures though, it has become a permanent feature of the tax landscape here. The charge nets the Government about €5 billion in tax a year, a level of revenue the current corporate tax windfall could easily cover. Such a move would give hard-pressed workers and middle-income earners a major bounce in income.
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While some of the increased earnings would find their way back into Government coffers as workers pay higher rates of income tax, the Government has been repeatedly warned not to use potentially temporary receipts to cover day-to-day spending, which presumably USC revenue now furnishes. Another worry would be the surge in consumer spending that might accrue from such a jump in income. That could overheat an economy already running close to full capacity. A more modest proposal might be to abolish the charge for those earning less than €70,000 a year, at a cost of €2 billion, but without offsetting measures elsewhere the same overheating risk applies. That said, we’re no longer in a fiscal emergency, the principal justification for the USC in the first place.
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Establish a Norwegian-style wealth fund
Something that wouldn’t come with an overheating risk and could perhaps cool the economy would be the establishment of a wealth fund along the lines of Norway’s. The latter, generated from the country’s huge oil and gas revenue, is the largest in the world, worth about $1.6 trillion (€1.5 trillion). The Minister will point to the Government’s existing plan to divert €4 billion of excess corporate tax receipts each year into the new Future Ireland Fund, which will support State spending after 2041.
But is it enough? The Government’s fund aims to deal with the pensions time bomb looming at the heart of the exchequer here. Norway’s fund, while on a different scale, has been more transformative, making the country one of Europe’s richest. The fund generated an income of $109 billion in the first quarter of this year and owns 1.5 per cent of all globally listed shares. Amassing the entirety of our windfall taxes in a similar way to Norway would create an income-generating pot for generations.
Transform the housing crisis with a giant public-sector housing build
Perhaps the most politically popular way to use the windfall would be to embark on a major public housebuilding programme, one that would lance the boil of our housing crisis once and for all. Ireland missed the era of the great big European social housing programmes, the ones that sustain city life in Austria, Germany and the Netherlands. Now we have a chance to play catch-up. Under its Housing for All strategy, the Government has pledged to spend €20 billion on housing over five years.
The strategy targets the building of 9,100 new-build social homes and 5,500 affordable-purchase and cost-rental homes each year. However, as the supply of new homes ramps up, estimates of demand keep widening. The Economic and Social Research Institute (ESRI) estimates the annual demand for housing at between 35,000 and 53,000, while Davy stockbrokers believes it could be as high as 85,000. Either way, we don’t seem to be solving either the supply or affordability issue quickly enough. Many believe this is because the Government’s plans aren’t ambitious enough.
Deliver a high-speed shuttle to Dublin Airport
Another obvious infrastructural deficit here relates to transport. Of all the projects earmarked in the Government’s National Planning Framework, a high-speed shuttle or rail link to Dublin Airport, one of the busiest hubs in Europe, would deliver a significant economic shot in the arm as well as eradicating a myriad of increasingly arduous routes to the State’s main airport. The MetroLink project – the planned rail line from central Dublin to the airport and Malahide in the north of the county – has been on the State’s planning to-do list for almost three decades having been postponed several times.
The current estimate is €9.5 billion for the proposed 18.8km line, equating to roughly €500 million per kilometre. Costly, yes, but undoubtedly a game-changer. Would it be economically savvy to carve such a strategic piece of State infrastructure from the Government’s wider development plan and fund it directly with corporate tax receipts, finally getting the project over the line after so many false starts?
Pay down the national debt
Standing at €223 billion last year, Ireland’s national debt is one of the biggest in the world on a per-capita basis. It works out at about €42,000 for every man, woman and child in the country. Using bumper tax receipts to pay this down would perhaps be the most boring, least transformative of all the options. It would generate a collective sigh on the part of the wider population and perhaps be welcomed only by a handful of fiscal hawks in the Department of Finance and the Irish Fiscal Advisory Council. Our debt is also going down nominally and as a percentage of national income, which is the ratio creditors focus on, anyway on the back big budgetary surpluses.
Pay everyone’s TV licence
Amid the debacle over RTÉ and how the State broadcaster should be funded, the Government could, in theory, fund it and other media, directly from central government with the help of corporate tax revenue. This would stanch the bleeding from the RTÉ payments scandal in terms of falling TV licence revenue while ensuring public broadcasting is maintained at a certain level and insulated from the vagaries of the market. It would also be something of a crowd pleaser, one for everyone in the audience as it were. There is, however, a snowball’s chance in hell of this coming to pass given recent comments from Ministers, which reflect a lack of political appetite for such a move.
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