BY THE END of October the ten biggest payers of corporation tax had paid €2.3 billion to the Revenue Commissioners. All of these ten companies are likely to be foreign-owned multinational corporations (MNC).
What can we get for €2,354 million (that’s €2.3bn for those of you who talk in billions)? A lot.
A couple of weeks ago the Comptroller and Auditor General released a report that analysed the costs of bailing out our delinquent banks. At current interest rates they estimated that the annual cost of servicing the debt associated with the bank bailout is €850 million per annum.
So after covering the ongoing costs of the bank bailout we still have €1,504 million left. This year paying the salaries of An Garda Síochána will cost the Exchequer €872 million while the cost of GP fees under the various medical card schemes will cost €463 million.
After paying for all that what we have left will just about cover the €172 million cost this year of providing the free preschool year in the Early Childhood Care and Education (ECCE) scheme.
That’s 10 companies covering the ongoing cost of the bank bailout, the salaries of the 15,000 staff in An Garda Síochána, GP care for 2 million people and a year of pre-school for 68,000 children.
And all that is provided from just the corporation tax paid by these 10 companies. This does not take into account the income tax, PRSI, VAT, excise duties and other taxes which further benefit from their presence here.
‘The money coming in may turn out to be temporary’
Across all companies nearly €6.4 billion has been collected this year in corporation tax. We are already €1.8 billion up on last year and with further receipts to come in December the annual increase will be somewhere around €2.5 billion.
Around four-fifths of corporation tax is paid by foreign-owned MNCs. This year the total corporation tax paid by MNCs will be around €5 billion – 20% more than is collected through the USC.
On top of this US companies in Ireland pay €6 billion in staff costs, buy €4 billion of goods and services from Irish suppliers and spend about €3 billion on their capital infrastructure. Every year. Maybe Bono was right after all.
It is possible that at some stage in the depths of our crisis, Irish negotiators were presented with an opportunity to burn some unsecured senior bondholders in our zombie banks (Anglo and INBS) but that this opportunity would come at the cost of increasing our corporation tax.
If this dilemma was faced we know that the right choice was made. It would be nice if life came with a cherry on top but that is not the way the real world operates.
Do we know why there has been a massive surge in corporation tax revenues this year? As the answer to this is “not really” then some prudence is warranted. We are still going to be running a deficit of around €3 billion this year and getting our borrowing down to zero has to be a budgetary priority. This could be achieved next year.
Not knowing where tax revenues are coming from is a positive problem to be facing and not one to be hugely concerned about just yet. Yes, it would be nice to know why this money is coming in, and it may yet turn out to be temporary, but the genuine cause for concern would be if all of this revenue was used to fund permanent increases in expenditure.
There were some signs of fiscal loosening in the recent budget. In particular, was the €1.5 billion of supplementary spending for this year that was slipped through in advance of Budget which itself contained €1.5 billion of tax cuts and expenditure increases for next year. But these measures only consume a portion of the revenue bounty we have received this year.
And it is not just corporation tax that is rising: income tax is up 5% this year and that is after €500 million of tax cuts were introduced in last year’s Budget. VAT is up nearly 9% on last year.
Between them, the two main tax heads have seen an extra €1.7 billion collected this year compared to last year and we know where this is coming from – more jobs and more spending. With the economy expanding at a decent pace there is no need for further stimulus from tax cuts or expenditure increases.
The benefits of a counter-cyclical budgetary policy are great in theory. We have all too recently experienced the costs of a “when I have it I spend it” mentality. But it is not clear that the lesson has scarred deep enough to make economically prudent counter-cyclical budgets politically feasible. It is the people that will determine this; not politicians.
Seamus Coffey is a Lecturer in Economics in University College Cork.
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