Irish Government Urged To Reduce Reliance On Corporation Tax Receipts
In early June, the European Union recommended that Ireland broaden its tax base and take further steps to crack down on aggressive tax planning. The EU said that Ireland’s public finances have improved, but suggested that the risks of revenue volatility remain and that the revenue base could be made more resilient. According to the EU, “limiting the scope and number of tax expenditures and broadening the tax base would improve revenue stability in the face of economic volatility.” The Union recommended that Ireland should “continue to address features of the tax system that may facilitate aggressive tax planning, and focus in particular on outbound payments.”
Then, hot on the heels of the EU grumblings, not for the first time, the Irish Fiscal Advisory Council warned the Government about funding spending increases or tax relief with high corporate tax receipts. According to IFAC’s latest fiscal assessment report, corporate tax receipts “are now a long way from conventional levels and from what the underlying performance of the economy would imply.” The report noted that corporation tax receipts had more than doubled since 2017. Receipts rose to a record 18.7 percent share of total tax receipts last year, up from 10.3 percent in 2011.
IFAC went on to stress that the Irish Government “needs to gradually wean itself off the reliance on corporation tax receipts that has built up in recent years.” As the sustainability of these receipts is unclear, IFAC urged the Government to commit to not using them to fund long-lasting spending increases. It recommended that the Government consider setting a fixed rule under which it would set aside excess receipts above a certain threshold.
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