Ireland a tax ‘bargain basement’ for firms – as austerity risks grow

IRELAND’S status as a bargain basement destination for tax is revealed in new international data from the OECD.

The figures showed the State collected a smaller amount in taxes as a percentage of gross domestic product, at 22.8pc, than all but two out of 36 countries covered.

However, the data is skewed by the use of GDP, which overstates the size of the economy here.

The findings come as the country’s budget watchdog warned the State risks a return to austerity unless Finance Minister Paschal Donohoe reins in spending or raises revenue.

The Irish Fiscal Advisory Council delivered a scathing assessment of the Government’s failure to capitalise on bumper corporate tax receipts, high economic growth and a sharp fall in interest costs to shore up finances.

“These failures represent a repeat of the policy failures of the past,” the body’s head, Seamus Coffey told the crossparty Select Committee on Budgetary Oversight.

The Government’s budgetary plans “lack credibility”, Mr Coffey warned.

Sinn Féin finance spokesman Pearse Doherty asked what response the report would elicit “other than a nice letter back from the minister thanking you for your views”.

Mr Coffey replied that he expected a commitment to “credible” budget numbers.

By the end of this year, the State will have benefited from a boost of €8bn to public finances, made up of lower interest costs and higher tax receipts, relative to what had been expected in 2015 and despite this it had failed to deliver a promised budget surplus by this year.

The relatively small tax take relative to GDP – that was highlighted by the OECD – demonstrates the vulnerability of finances to an economic downturn.

A proportionately smaller ratio means that if revenues started falling sharply in a recession, harsh spending cuts will have to be mandated.

That would be exacerbated by one of highest debt loads in the world, estimated at 105pc of gross national income this year as the debt will need to be serviced from a smaller revenue take.

Debt service costs have plunged from as peak of €7.8bn a year in 2013 to €5.8bn in 2017 but could rise again sharply if finances deteriorated.