Workers at multinational firms account for over a fifth of all income tax paid in the State and the large number of high earners at such companies poses a systemic risk to the tax base, an Oireachtas report has found.
A shock to the multinational sector would not just impact on the revenue accrued from corporation tax receipts, but would have a serious effect on income taxes from workers in the area, it adds.
The findings are in contained in the pre-budget commentary from the Parliamentary Budgetary Office (PBO).
The office was established last year and functions as an independent unit within the Houses of the Oireachtas. It provides briefings to TDs and Senators on budgetary matters.
Overall, the PBO says the economy is not at risk of overheating and says Minister for Finance Paschal Donohoe should aim for a balanced budget. It also says that the "tax base should be broad and focused on less volatile sources of revenue".
It must be noted there is a potential systemic risk due to the number of high-income individuals linked to the activity of multinationals
The sustainability of increased corporation tax receipts and the concentration of large payments of tax on a small number of firms are risks that should be tackled.
Significant risk
It notes that the top 10 corporate taxpayers pay 39 per cent of the overall take in that heading, with foreign-owned multinationals paying 80 per cent of all corporation tax . However, it also highlights the level of income tax paid by multinational employees as a significant risk.
“Ireland’s tax base is highly exposed to firm and sector-specific shocks,” the report says. “It must be noted that there is also a potential systemic risk due to the number of high-income individuals linked to the activity of multinationals.”
These are either directly employed by multinationals or indirectly by companies associated with their activities. The report notes that “individuals employed by foreign-owned multinationals make up 21 per cent of the income tax base”.
Experience has shown that it was unwise to implement public sector pay increases, while at the same time narrowing the tax base
It also says that decisions to increase pay or numbers in the public sector should be “taken cautiously” and that any extra money for public pay should be linked to taxes from “less volatile” sources.
Ageing pressure
“Population ageing will put more pressure on the State’s finances, particularly in the area of health and social protection, as well as contributing to reducing the potential capacity of the Irish economy.
“The PBO considers it crucial to link expenditure decisions on pay and numbers to stable and less volatile revenue streams. Experience has shown that it was unwise to implement public sector pay increases, while at the same time narrowing the tax base, as well as funding permanent spending through volatile tax revenues.”
Review of recruitment policy across the public sector will be possible because of the high number of retirements expected in future years.
Meanwhile, Sinn Féin will launch its alternative budget on Tuesday. It proposes raising €2.4 billion in taxes through measures such as the introduction of a 5 per cent levy on income over €140,000, and tapering out tax credits on incomes above €100,000 and up to €140,000 among other measures.
The party proposes €1 billion in capital expenditure on social and affordable housing, as well as €450 million to improve health services.