The Department of Finance is expecting another surge in corporation tax this year despite a severe global recession arising from coronavirus.
In a foot note to its budgetary White Paper published on Friday, it forecast that receipts from the business tax would hit a record €12.5 billion in 2020.
The forecast, which would equate to an increase of 15 per cent on the €10.9 billion collected last year, is based on exchequer return data for the first nine months of the year.
The windfall is linked to the strong performance of Ireland’s multinational sector, which is dominated by pharma and technology companies, which, in many instances, have seen a pick-up in demand for their products and services during the pandemic.
A smaller increase of €400 million is pencilled in for 2021.
The better-than-anticipated return in corporation tax is one of the reasons why the Government is expecting a budget deficit this year of around €21 billion instead of the €25 billion originally forecast.
Receipts have doubled over the past four years, with the increase linked to a global clampdown on tax avoidance and the onshoring of assets, such as intellectual property (IP), here.
It is now the Government’s third largest tax in terms of receipts behind income tax and VAT, and would account for nearly 22 per cent of the Government’s total tax base.
The Government has, however, been warned by its budgetary watchdog, the Irish Fiscal Advisory Council (Ifac), not to use the windfall to cover increases in day-to-day spending as it is concentrated around a small number of firms and therefore inherently volatile.
Some 77 per cent of receipts last year came from foreign-owned enterprises or multinationals, and 40 per cent from just 10 big firms, including Apple, Google and Microsoft.
Excess
Ifac’s former chairman Séamus Coffey estimated that €2 billion to €6 billion of the total could be classified as “excess” or above the economy’s underlying performance and/or historical norm.
Separate figures from the the Central Statistics Office (CSO) on Monday show that prior to the Covid-19 pandemic the Government had generated a budgetary surplus and saw debt as a percentage of income fall to its lowest level in more than 12 years.
The full-year statistics show the Government generated a surplus of €1.9 billion in 2019, 0.5 per cent of gross domestic product (GDP).
The figure is expected to morph into a €21 billion deficit this year, with spending on Covid-related wage and health supports soaring and a fall-off in tax revenue, particularly VAT.
The CSO figures show revenue mainly from tax receipts increased by €5 billion last year, while spending rose by €3.5 billion.
The figures also shows Government debt fell to 57.4 per cent of GDP in 2019. Gross debt stood at €204.2 billion last year, compared to €205.9 in 2018.
Gross debt is also expected to rise considerably this year as the Government borrows to pay for Covid-related expenditure.
Bonds
The National Treasury Management Agency (NTMA) sold an additional €1.5 billion of bonds, mainly at negative yields, last week.
The auction brings to €22.75 billion the amount the NTMA has raised on the long-term debt markets so far this year.
In May it set a funding target of €20 billion to €24 billion to help deal with the cost to the exchequer of the pandemic.
