février 1, 2023


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IFAC says Ireland relies heavily on corporate tax

The head of the Irish Financial Advisory Board said Ireland needs to reduce its reliance on corporate tax and take a wise approach to it.

Sebastian Barnes told the Oireachtas Budget Oversight Committee that it is still very difficult to know what will happen politically both internationally and in the US with the current negotiations on a global corporate tax deal and things may change.

But he said one potential impact of the change would be a loss of corporate tax, which the government has estimated could be as high as 2 billion euros, but the International Federation of Accountants estimates could be as high as 3 billion euros.

He also said there could be an impact on the economy, as some companies may withdraw, although that seems relatively unlikely, or other new companies may not come here because Ireland is seen as less attractive.

What makes the situation so difficult, he added, is that corporate tax revenue is highly concentrated around a small number of companies, making it very difficult to predict what the effects will be.

As a result, he said, Ireland needs to reduce its reliance on taxes because there is a lot of risk there.

« A lot of the money is coming from a relatively small number of sources where things can change relatively quickly, » he said.
A business finance spokesman, Jade Nash, asked Mr. Barnes if he thought the government should review its figures about the potential loss that changes to the global corporate tax system could incur.

The president of the International Federation of Accountants said that it is noted that the overall level of corporate tax revenue is much higher than it was a few years ago, and these numbers are still coming in very strong.

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As a result, he said, some of that extra money received may be at risk.

« So maybe those risks have increased, but it’s very hard to tell, so I think the only thing that needs to be done is to take a relatively wise approach to dealing with it, » he said.

Mr. Barnes also told the committee that the board’s assessment is that the government’s €4.7 billion package of budgetary measures appears to be prudent.

He added that after the next year, the government should prioritize between its plans of large expansions in public investment, rapid increases in current spending and the desire to cut taxes.

« By expanding all areas at once, the government is effectively avoiding hard choices and slowing the return of debt ratios to safer levels, » he said.

« This reduces the scope for ensuring that future recessions or crises can be mitigated through strong financial support in the same way we have seen during the pandemic. »

« A wiser approach would be to limit current spending to a slower pace of increase or not implement plans to cut taxes while continuing to ramp up public investment. »

Barnes also said he understands the issue of investing in infrastructure when interest rates are low.

But he said there are questions about the economy’s ability to catch up with such speed and it must be managed carefully, adding that it carries risks.

He said the government had not made clear how a persistent multi-year deficit complies with EU fiscal rules.

On the face of it, he said, it does not appear to be consistent, but the government should make clear what its strategy is.

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« There may be special circumstances regarding the high level of investment that Ireland is planning in the coming years, but at the moment EU rules basically do not allow this, » he said.

On housing, Mr. Barnes said a much better economic assessment is needed from the government on what it plans to do in the Housing for All strategy, and what the resulting effects will be on rent and house prices.