€6BN TAX HOLE BLOW TO ENERGY RELIEF HOPES
Cabinet dossier on fall in corporate receipts f lags major risk to f inances
A SHOCK dossier warning of a €6bn hit to the public finances will be used by Finance Minister Paschal Donohoe to push back against calls to unveil a larger cost-of-living package to ease the energy crisis, the Irish Mail on Sunday can exclusively reveal.
Mr Donohoe will present the memo – which warns that unsustainable corporation tax revenue poses ‘a major risk to the public finances’ – to Cabinet colleagues this week.
Exchequer figures published on Friday revealed a massive €6.3bn surplus, which has piled further pressure on Mr Donohoe to loosen the purse strings when he delivers the Budget later this month. It also
comes in the wake of a series of crippling increases by energy providers, which means household utility bills will have almost doubled in the space of a year by October 1.
Mr Donohoe – who has come under fire from Coalition and party colleagues for being overly parsimonious – will argue that the new information about a potential €6bn tax hit illustrates a clear and present danger to the economy.
The memorandum – seen by the MoS – is based on a report called ‘De-risking The Public Finances – Assessing Corporation Tax Receipts’ that was commissioned by Mr Donohoe. It notes: ‘The purpose of the document is to highlight the fiscal vulnerabilities stemming from the upward shift in corporation tax which could be potentially windfall in nature.’
The memo points out that corporate tax receipts have more than doubled in five years and that €1 in every €8 collected comes from just 10 large payers.
It states: ‘There is a compelling case to treat a portion of corporation tax receipts as “windfall” in nature… to derisk the public finances and ensure fiscal sustainability.
‘The level shift in corporate tax receipts, occurring over a very short timeframe, raises legitimate questions regarding the sustainability of this revenue steam.
‘The concentration of receipts within a small number of firms is an additional vulnerability.
It continues: ‘Over half of corporate tax receipts is paid by just 10 large payers. This means €1 in every €8 of all tax collected… is directly sourced from just 10 large corporate taxpayers, a major concentration risk.’
The memorandum adds that ‘reliance on potentially volatile sources of income to fund permanent increases in public expenditure is a blind spot for the public finances’.
It states there is ‘considerable uncertainty around how much of the level shift in corporate tax receipts is permanent’, and says it is ‘impossible to be definitive’. However, it adds: ‘The quantum of potentially at-risk receipts could be in the region [of] €4bn to €6bn. It is not difficult to conceive a situation in which the figure could be in excess of this.’
The document also warns of the impact of planned corporation tax reforms, which are estimated to cost the Exchequer in the region of €2bn.
‘Given the developments within international tax policy discussions at OECD level, the prevalence of foreign-owned firms within the CT [corporation tax] system in Ireland
creates further exposure to any major changes in global tax rules.’
Uncertainty over the current corporation tax regime is heightened by the hostile stance of US president Joe Biden, who is seeking to revamp the global tax landscape. President Biden’s ‘Made in America’ plan, which proposes a global minimum tax rate, has created much unease within Irish fiscal circles. US treasury secretary Janet Yellen has also said the ‘race to the bottom’ on international corporate tax rates needs to end.
Mr Donohoe will present his department’s memo to Cabinet as he comes under intense political pressure to introduce more measures to help hardpressed householders combat the deepening energy crisis.
One senior Government source told the MoS: ‘It is probably the starkest document the Cabinet will receive since the [IMF] bailout. The corporation tax party is almost over.
‘If the role of a good finance minister is to take the punchbowl away from the party, Paschal has certainly done that. There won’t be much of a chance of a [new] 30% tax rate for [Tánaiste] Leo [Varadkar] when that grenade drops.
‘He is a clever fox, Paschal… there is no better time for a report like this to be released to cool the demands for more and more spending.’
As Mr Donohoe prepares to brief ministers on the €6bn fiscal threat, more divisions are emerging between the Coalition parties on how to combat the energy crisis.
There have been calls from Fine Gael and Fianna Fáil backbenchers to intensify turf cutting to provide alternative energy sources as the threat of winter blackouts looms, but this is being strongly resisted by the Green Party.
Former minister and veteran Mayo TD Michael Ring told the MoS: ‘At a time like this we should be opening the bogs instead of closing them.’
Another Fine Gael source said: ‘Everyone is doing what they have to do. Look at Germany – they are reopening the coalmines. The Green Party need to recognise this is a genuine emergency.’
Green leader Eamon Ryan, who oversees the transport, environment and energy portfolios, has also come under fire over his handling of the crisis.
One minister said: ‘There is a sense he is the weak link waiting to happen. So far his response has consisted of a proposal for a windfall tax and an information campaign.’
A senior Fianna Fáil source said: ‘There’s a concern that Eamon has too many ministries. Being in charge of transportandenergyistoomuch–they should be separate ministries.’
Speaking yesterday, Taoiseach Micheál Martin moved to dampen expectations ahead of the Budget.
He said that despite the funding boost from better-thanexpected Exchequer returns, ‘some of that revenue may not be sustainable into the future, so we have to be conscious of that’. But he acknowledged the ‘enormous impact’ the fuel crisis is having on households facing into the winter.
The Taoiseach added: ‘We are looking at a once-off cost-ofliving package that will be applicable to this calendar year and then the Budget that will take us through 2023. And so we will have resources but there are limits to what we can do. We don’t want to compound the inflation issue and make it worse and, therefore, we have to do it in a strategic way.’
‘Not much chance of a new 30% tax rate’