Volatile corporation tax unsustainable

THE announcement of an extra full €1bn in corporation tax receipts ahead of earlier forecasts is welcome news at a level this close to a Budget required to meet pressing public spending demands, but is also deeply concerning at another, in that it seems to confirm that Ireland has become reliant on what is an unsustainable revenue source. The anticipated extra funding is now expected to fill a growing black hole in the funding of the health service, amounting to around €700m. There is clearly something seriously amiss when what is described as a ‘technical change in international accounting standards’ is relied upon to bail out the health service of a nation. This state of affairs cannot be allowed to continue.

The former Governor of the Central Bank, Patrick Honohan, last week warned that “echoes” of relatively recent past threats to the country’s economic security can be heard, citing the massive increases in corporation tax receipts from a small number of multinational firms, especially since 2014, as a new source of revenue risk to have emerged post-crisis. Seamus Coffey, the chairman of the Irish Fiscal Advisory Council, has also expressed serious concern over what he has called a “worrying pattern of large, unplanned increases in Government spending” reliant on volatile corporation tax receipts.

A recent assessment of Ireland’s corporation tax code has found that this country meets the highest standards internationally — Ireland is, technically, not a tax haven — however, it has also warned that the recent surge in tax receipts from multinationals based here will continue until around 2020. That is just two years away.

While the revenue stream may continue at a lesser level beyond that, it is also undoubted that Ireland is in the cross hairs of international developments which raises serious questions about the sustainability of our corporation tax code into the medium-to-long term. This is the sound of an alarm bell ringing, but is it being heard?

Funding of the nation’s health services is also a critical issue. Indeed, there has been a 17pc increase in net spending between the years 2014-2017, admittedly coming off the back of years of serious austerity post crash. However, a recent review has also found that despite significant increases in expenditure over this three-year period, there has been little improvement made with regard to acute sector output.

As Mr Coffey has also said, it has become obvious that health spending plans are not credible, which he has warned can lead to what is called a “soft budget constraint”, in other words, that managers of the health service become convinced that overspends will be accommodated and, in turn, less and less convinced of any real pressures to stick to spending limits.

Now we are told that a €700m black hole in the health service is to be filled with an unexpected boon in corporation tax receipts, perhaps put down to a single multi-national company operating in this country. We do not intend to be critical of those who work in the health service, nor necessarily their managers. It is apparent that the health service has been underfunded for years. However, it is also apparent that there is room for improvement in the management of the funds it does receive.

A root-and-branch analysis of the health service funding model is required before, as has been warned, echoes of the recent past reverberate with the most profound consequences again.