There are perhaps two ways of looking at the Department of Finance’s latest warning over corporation tax: good and bad.
While publishing the annual progress report (formerly the stability programme update), department officials noted, in passing, that they were expecting approximately €2 billion less in business tax receipts this year. But they insisted the downward revision was not related to tariffs.
The department’s chief economist, John McCarthy, said they had been informed by Revenue that several firms will be paying a lower-than-expected amount of tax this year “on a one-off basis”.
This had been incorporated into the department’s forecasts without knowing anything about “the specifics of the companies” involved, he said.
Now back to the two ways of looking at this. The loss of €2 billion on a forecast and when the total still promises to be in the region €29 billion, a multiple of what it was only a few years ago, is not a bad result – particularly when the State is still likely to run a big budget surplus anyway.
Moreover, especially so when many peer countries are looking at budgetary cutbacks. We’ve been warned all along that these revenues are volatile.
The more negative interpretation is that the €2 billion revision has seemingly arrived before the impact of US president Donald Trump’s tariffs.
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We might see a bigger downward revision later in the year or next year when the impact of these measures is felt. The impact of tariffs on global trade is negative; how negative depends on how far Trump pushes his trade agenda. All this will take time to play out and to appear on company balance sheets.
The department’s progress report is strewn with caveats and cautions because of the high level of uncertainty posed by Washington’s trade policy. “It is important to stress that the confidence intervals around these estimates are particularly large in the current environment,” it says.
Instead of forecasting, a dangerous endeavour in this climate, the department says it is scenario planning. And even these (scenarios) may soon be replaced by new ones.
