The Irish Fiscal Advisory Council (Ifac) has warned the Government against its plans to save just €1 out of every €7 in corporation tax next year, which it described as “risky” and “a marked shift in policy”.
In an opening submission to the Oireachtas Committee on Budgetary Oversight on Tuesday, seen by The Irish Times, the council will warn that only 15 per cent of corporation tax receipts will be saved next year, down from 32 per cent this year.
The Government is planning to run a surplus of €10.2 billion this year, equivalent to 32 per cent of the expected corporation tax total of €32 billion.
It has signalled it will run a smaller surplus of €5.1 billion in 2026, which equates to just 15 per cent of the expected corporation tax total that year of €34 billion.
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The smaller surplus in 2026 is because spending is growing faster than revenue.
“This is a marked shift in policy. It means the public finances are less well prepared for the next economic downturn and predictable budgetary pressures,” the watchdog says.
It claims current budgetary policy is adding money into the economy when it is not needed.
“The Government is planning on spending most of its corporation tax receipts,” the council says.
“This is risky as these receipts are largely unrelated to economic activity in Ireland,” it says.
“While we don’t anticipate a sudden fall in corporation tax, it is a volatile revenue source to be basing day-to-day spending on,” it says.
Ifac expects corporate tax to increase by up to €3 billion from next year as big multinationals with a turnover above €750 million become liable to pay a new minimum tax rate of 15 per cent.
The Government will set aside €6.1 billion in two wealth funds this year and plans to put an additional €6.5 billion into the funds next year.
In its submission, Ifac says the Irish economy is continuing to perform well.
“More people are in work than ever before, and employment continues to grow,” it says, while noting wages are on average growing faster than prices.
However, it warns that because the economy is performing strongly it does not require support from budgetary policy.
“Monetary policy is already providing support which the economy does not need. Interest rates have been halved over the last 18 months,” it says.
The watchdog warns that budgetary pressures from an ageing population and climate change will soon have a “significant impact on the public finances” in the form of more spending on pensions and healthcare.
These factors could increase spending by about 6 per cent of national income (or €20 billion in today’s money) by 2050, it says.
The council also takes issue with the Government’s lack of multiyear budgeting.
“Budgeting should be a multiannual process. Ireland is still budgeting in a year-to-year fashion,” it says.
“Moving to multiannual budgeting would give government agencies more certainty over their future funding,” it says.
The Government has yet to submit a revised medium-term fiscal plan to the European Commission.
