A record windfall of 12.5 billion euros in corporate tax expected this year
The Ministry of Finance expects a further rise in corporation tax this year despite a severe global recession due to the coronavirus.
In a footnote to its Budget White Paper released on Friday, it predicts business tax revenue will hit a record €12.5 billion in 2020.
The forecast, which would equate to a 15% increase on the €10.9 billion raised last year, is based on Treasury 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 pharmaceutical and technology companies, which in many cases have seen a recovery in demand for their products and services during the pandemic.
A more modest increase of 400 million euros is planned for 2021.
The better-than-expected corporate tax yield is one of the reasons why the government expects a budget deficit of around 21 billion euros this year instead of the 25 billion initially forecast.
Revenue has doubled in the past four years, with the increase linked to a global crackdown on tax evasion and the relocation of assets, such as intellectual property (IP), here.
It is now the government’s third-largest tax in terms of revenue behind income tax and VAT, and is thought to account for almost 22% of the government’s total tax base.
The government has, however, been warned by its budget watchdog, the Irish Fiscal Advisory Council (Ifac), not to use the windfall to cover day-to-day spending increases as it is concentrated around a small number of businesses and therefore inherently volatile.
Last year, some 77% of revenue came from foreign companies or multinationals, and 40% from just 10 big companies, including Apple, Google and Microsoft.
Former Ifac President Séamus Coffey estimated that €2-6 billion of the total could be classified as “surplus” or above the underlying performance of the economy and/or the historical standard.
Separate figures from the Central Statistics Office (CSO) show on Monday that before the Covid-19 pandemic the government had generated a budget surplus and seen debt as a percentage of revenue fall to its lowest level in more than 12 years.
Statistics for the full year show that the government generated a surplus of €1.9 billion in 2019, or 0.5% of gross domestic product (GDP).
That figure is set to turn into a €21 billion deficit this year, with a spike in Covid-related wage and health support spending and a drop in tax revenue, particularly VAT.
Figures from the CSO show that revenue coming mainly from tax receipts rose by €5 billion last year, while spending rose by €3.5 billion.
The figures also show that public debt fell to 57.4% of GDP in 2019. Gross debt stood at €204.2 billion last year, down from €205.9 billion in 2018 .
Gross debt is also expected to rise significantly this year as the government borrows to pay for Covid-related spending.
The National Treasury Management Agency (NTMA) sold an additional 1.5 billion euros of bonds, mostly at negative yields, last week.
The auction brings the amount NTMA has raised in the long-term debt markets so far this year to 22.75 billion euros.
In May, it set a funding target of 20-24 billion euros to help meet the cost of the pandemic to the public treasury.