One-eighth of the State’s annual budget – the budget that funds public transport, builds roads and social housing, pays teachers’ and nurses’ wages and funds weekly welfare and pension payments – now comes from just 10 large US firms. These are thought to include Facebook, Google, Apple, Microsoft, Pfizer, MSD, Johnson & Johnson and Intel.
This is a very peculiar and very precarious manifestation of globalisation that is not replicated anywhere else in the world. Take the Government’s likely €2 billion budget surplus this year. This healthy fiscal position would morph into a €7 billion deficit without the excess corporate tax receipts, entirely dissolving the Coalition’s cost-of-living strategy in the budget.
By the year’s end, corporate tax will be the second-largest source of revenue for the State, eclipsing VAT for the first time. On the basis of the €8 billion generated so far this year, business tax receipts are now expected to net the exchequer €19-€20 billion in total in 2022, up from last year’s record €15.3 billion total. A decade ago, VAT receipts dwarfed corporation tax. But the onshoring of multinational assets here plus a hike in multinational profitability generally has changed that and handed the Government a veritable windfall.
Concentration risk
With the Central Bank suggesting that as much as €8 billion of last year’s haul might be unsustainable long term, the concentration risk at the heart of the State’s finances is considerable. And the warnings are coming thick and fast.
The sensible thing to do would be place the additional receipts – or a significant portion of them at least – to one side in a rainy-day fund: instead the Government has used them to shore up permanent expenditure, a throwback to when tax windfalls from the property sector were used for fund permanent expenditure in the pre-2008 period.
Events keeps getting in the way of the rainy-day fund plan, which the previous administration had signed up to but later deferred. First Brexit posed too big a risk, then came Covid and now we have the cost-of-living crisis. Politically, it seems, it’s never a good time to save but surely a record €19-€20 billion tax haul this year provides a gilt-edged opportunity.
