Government ‘missed opportunity’ not saving company tax windfalls, Ifac says

The Government would have been in a better starting position to deal with the coronavirus shock if it had used unsustainable corporate tax windfalls in recent years to run a larger budget surplus, or put more money into a rainy day fund, according to the acting chairman of the State’s fiscal watchdog.

The Irish Fiscal Advisory Council (Ifac) had warned consistently before the Covid-19 crisis that up to €6 billion of Ireland’s annual corporate tax take could not be counted on as being sustainable in the future, as it was driven by a small number of multinationals.

Speaking to reporters ahead of the publication on Wednesday of Ifac’s latest biannual Fiscal Assessment Report, the budgetary watchdog’s acting chairman, Sebastian Barnes, said the Republic “could have been running a much bigger surplus” in recent years.

“Or there could have been a lot more money in the Rainy Day Fund, had it been put in in the way that the council had advocated,” he said, referring to the fund that was set up late last year with an initial €1.5 billion transfer from the Ireland Strategic Investment Fund.

“In some ways that was a missed opportunity,” said Mr Barnes. “The main impact is that down the line the level of debt would have been lower, which would have been welcome, and maybe the adjustment needed would have been less as well.”

Ifac says a surge in State borrowings to deal with the crisis will see national debt rise by next year to between 114 per cent and 160 per cent of the size of the underlying economy – which excludes the activities of multinationals and is referred to as gross national income star (GNI*). That wide range, reflecting huge uncertainties about the drop-off in tax income and the spike in pandemic spending, compares to a ratio of just under 100 per cent last year.

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