Com­mis­sion warns on cor­po­ra­tion tax

Au­tumn out­look flags un­cer­tainty of some sources of State rev­enue Govern­ment plans to use ad­di­tional €1bn in cor­po­ra­tion tax to help pay for health

The Irish Times - Business - - BUSINESS | NEWS - EOIN BURKE-KENNEDY and PETER HAMIL­TON

The Euro­pean Com­mis­sion has be­come the lat­est in­flu­en­tial body to raise con­cerns about the sus­tain­abil­ity of the State’s cor­po­ra­tion tax base.

In its au­tumn fore­casts, the com­mis­sion warned that the un­cer­tainty “of some sources of govern­ment rev­enue (no­tably cor­po­rate in­come taxes)” pose a ma­jor risk to the Govern­ment’s fis­cal out­look.

Re­ceipts from the busi­ness tax have more than dou­bled to €8 bil­lion since 2015 amid a huge trans­fer of multi­na­tional as­sets here in the wake of a clam­p­down on tax avoid­ance.

Nearly two-thirds comes from a small num­ber of firms pay­ing in ex­cess of €10 mil­lion a year and al­most 40 per cent can be linked to just 10 com­pa­nies.

Sev­eral agen­cies, in­clud­ing the Cen­tral Bank, the Ir­ish Fis­cal Ad­vi­sory Coun­cil and the In­ter­na­tional Mon­e­tary Fund (IMF), have warned the Govern­ment not to tie spend­ing in­creases to the cur­rent wind­fall.

In its re­port, the com­mis­sion also flags per­sis­tent over­spend­ing in health as a key risk to the pub­lic fi­nances.

The Govern­ment plans to use an ad­di­tional €1 bil­lion in cor­po­ra­tion tax re­ceipts to help pay for health spend­ing this year, which is fore­cast to rise to €700 mil­lion by the year’s end.

The com­mis­sion has up­graded its growth fore­cast for the Ir­ish econ­omy for 2018 by more than two per­cent­age points to 7.8 per cent, which is higher than the Govern­ment’s 7.5 per cent fore­cast.

It says it ex­pects growth to mod­er­ate to 4.5 per cent next year and 3.8 per cent in 2020.

The com­mis­sion warns while the Repub­lic ’s econ­omy will once again out­per­form its euro zone peers, “a large de­gree of un­pre­dictabil­ity re­mains linked to . . . multi­na­tion­als, which could drive head­line growth ei­ther up or down”.

“Ire­land’s eco­nomic out­look is sub­ject to sig­nif­i­cant un­cer­tain­ties re­lated, in­ter alia, to changes in the in­ter­na­tional tax­a­tion and trade en­vi­ron­ment,” it said.

The im­pact of Brexit and Don­ald Trump’s tax re­forms in the US are viewed as the chief threats to head­line growth.

Up­ward trend

The com­mis­sion said both the em­ploy­ment rate and the labour force par­tic­i­pa­tion rate, which re­main be­low pre-crash lev­els, are ex­pected to con­tinue “trend­ing up­ward”.

The tight­en­ing labour mar­ket would fur­ther boost dis­pos­able in­come as it ex­erts up­ward pres­sure on wages.

In his fore­word to the au­tumn out­look, Marco Buti, di­rec­tor gen­eral for eco­nomic an d fi­nan­cial af­fairs at the com­mis­sion, said growth in Europe peaked in 2017 and the “out­look is now less favourable”.

“Bar­ring ma­jor shocks, GDP should con­tinue to grow at a mod­er­ate pace. The road ahead is, how­ever, fraught with un­cer­tainty and nu­mer­ous, in­ter­con­nected risks.”

While the Euro­pean econ­omy shows no signs of over­heat­ing, he said, labour sup­ply short­ages cou­pled with in­fla­tion across the bloc “could put an un­timely end to growth”.

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