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Magic Money: Corporate Tax Receipts In Ireland

Ireland has been one of few countries over the last few years whose macroeconomic performance has thrived. Although the poly-crisis overlap of Brexit, the pandemic, and the energy price shock continues to pose significant challenges to Ireland, the off-the-charts performance of Irish GDP and tax collection has provided authorities with sufficient resources to deliver large-scale fiscal support to the public, while also consolidating its fiscal accounts. These outcomes typically work in opposition. The strong performance is broadly due to windfall corporate receipts. This commentary looks at corporate taxation in Ireland and assesses the main threats to what appears to be magic money: 1) near-term risk linked to the performance of large multinational corporates, and 2) medium-term risks from global tax reform.

• Another year for record corporate tax helped return Ireland to fiscal surplus.
• Windfall corporate receipts may be hiding vulnerabilities.
• Risks of reversal of corporate revenues stem from potential weak performance of large multinational corporates and fallout from global tax reform.

“Irish authorities are well aware that public finances, while strong, are worse than suggested by headline data and that the growth rate of corporate tax seen in recent years cannot last,” said Jason Graffam, Vice President of the Sovereign Group at DBRS Morningstar. “Expenditure control is perhaps the most important safeguard against the known risk of a fiscal shock brought on by a reversal of corporate revenues.”