Donohoe fears job losses among multinationals will dent tax take

Ireland’s reliance on highly-paid workers at multinationals puts future tax receipts at risk, the Department of Finance has warned. A surge in income tax receipts last year – the take was €3.7bn or 16pc up on pre-pandemic levels – was largely down to wage increases and not job creation, the Department said in its annual tax report. Pandemic-proof sectors such as IT and pharmaceuticals drove the bumper tax take last year, which has continued into 2022. However, Government is increasingly worried not only about a loss of corporation tax revenue as a result of global tax reform, but also job losses and a movement of high-earners out of Ireland. “In the event of a shock to the multinational sector, this would also result in a substantial loss to income tax receipts. As such, the concentration risk – where a relatively large share of income and corporate tax receipts arises in large multinational firms – is a significant vulnerability for the public finances,” Finance Minister Paschal Donohoe said at the publication of the annual tax report. Last year’s OECD deal – to tax large corporations 15pc on their global income and shift taxing rights to countries where they make their sales – could see Ireland lose around €2bn a year in corporation tax receipts once it is implemented, which is unlikely to be before 2024. If that – or an economic slowdown – forces a reduction in multinational investment in Ireland it could herald a “very substantial loss to income tax (and PRSI) receipts”, the tax report said. Corporation tax receipts saw the largest percentage jump last year – 41pc or €4.4bn higher than 2019. They are expected to come in even higher in 2022 than the total €15.3bn collected last year. The Irish Fiscal Advisory Council said this week that the overall tax take could come in €3.5bn ahead of estimates the Government made in the summer economic statement just a few weeks ago. But it said that without “excess” corporation tax – amounts that can’t be justified by the performance of the domestic economy – the budget would be in deficit instead of surplus this year. It warned the Government to put excess receipts into a rainy day fund or a new pensions reserve fund to pay for the mushrooming costs of allowing people to keep retiring at age 66. The Department of Finance estimates that the Government will need to find an extra €7bn to fund pensions and other age-related expenditure on public services by the end of the decade.

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