Friday, February 23, 2024

Ireland rakes in €6.3bn corporation tax windfall in November

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Ireland’s corporation tax receipts bounced back strongly in November after three months of falls, alleviating fears that a bonanza from international technology and pharmaceutical companies in the country had peaked.

But Finance Minister Michael McGrath cautioned that “while corporation tax is now 4 per cent ahead of 2022, it is clear that the era of persistent over-performances is coming to an end”.

According to the finance ministry, corporation tax receipts for November, typically a bumper month, reached €6.3bn ($6.8bn), a 27 per cent or €1.3bn rise on the same month last year.

The record November performance followed falls in corporation tax receipts of €1bn in both August and October this year, and a €250mn slide in September.

However, expectations of another dizzying year, after corporation tax revenues doubled between 2020 and 2022, look likely to be dashed.

The ministry said November’s returns demonstrated “the exceptional volatility in this highly concentrated revenue stream”. A third of last year’s record corporation tax receipts came from just three tech and pharma companies.

Overall in the year to date, corporation tax has raised €22bn compared with a little over €21.1bn in the first 11 months of last year.

“We needed a big month to make sure we’d meet our end-year target,” said Olivia Lynch, head of tax markets at consultancy KPMG. “It augurs well for next year.”

As a result, Ireland’s corporation tax receipts this year look unlikely to exceed the government’s already revised forecast of €23.6bn, up from last year’s record €22.6bn. That was 47 per cent higher than the 2021 figure.

“We did think it would have been a bit better and forecasts earlier in the year were for a better out-turn,” said Eddie Casey, chief economist at the Irish Fiscal Advisory Council.

“The government will probably see it as not a disaster, as opposed to great news. The focus should not be on this month’s receipts in any case, it should be on sticking to a sustainable path overall, ignoring volatile developments in corporation tax.”

Nevertheless, the positive news came after revised data from the Central Statistics Office showed Ireland was in a technical recession, when measured by gross domestic product. Officials said a drop in exports, much of it from pharma firms, drove GDP into the red in each of the past four quarters.

However, GDP is considered an unreliable measure of Ireland’s economic performance because it is so skewed by global firms based in the country.

The finance ministry said Ireland’s €5.4bn exchequer surplus at the end of November was worse than the €12.1bn in the same period last year, reflecting higher spending and the transfer of €4bn to a savings fund.

But corporation tax revenues could grow significantly under future changes to bring in a minimum tax rate in effect under a global deal that takes effect next year, Casey said.

Ireland will raise its corporation tax to 15 per cent from 12.5 per cent, under one pillar of the deal. The other pillar, establishing where global companies should book their profits and pay tax, has yet to be agreed.

The Irish government has pencilled in a cost of €2bn to its economy overall if the twin agreements are implemented in full, but has not broken down how much the corporation tax increase alone could bring in.

The government has been betting on a string of hefty surpluses in the coming years, some of which it will save in new sovereign wealth funds to set funds aside to meet future pension and infrastructure needs.

The government’s plans may be complicated by speculation that Paschal Donohoe, the public expenditure minister who heads the Eurogroup meeting of eurozone finance ministers, is preparing a bid for the top IMF job next year.

Donohoe, a former finance minister who works closely with McGrath, was reported by Bloomberg last week to have held preliminary talks in the US on a prospective bid to lead the IMF.

Donohoe is one of the government’s most heavyweight ministers and his departure would be a serious blow as the government faces a general election due by March 2025.

His spokesperson did not deny the report, saying only that Donohoe was “committed to serving his full mandate in Europe and will also be a candidate in the next election in Ireland”.

Taoiseach Leo Varadkar played down the speculation, saying “the issue doesn’t arise at the moment”.

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