The slowdown in the global tech sector poses a risk to soaring corporate tax receipts in Ireland next year and in particular in 2024, the Department of Finance's chief economist John McCarthy said today.
Corporate receipts, mainly paid by a small number of large multinational companies whose European headquarters are based in Ireland, have risen by over 400% in the last 10 years.
They now account for around 25% of the country's entire annual tax take.
John McCarthy said corporate taxes could reach €22 billion this year, above the €21 billion forecast two months ago, and that he was "more worried" about later years, especially if there is a shock to the ICT (information and communications technology) sector.
"Within our numbers, we do have a slowdown in the ICT sector built in but since we did the budget (in September), I think it's fair to say the correction in the sector has maybe been a little bit stronger than we might have thought," McCarthy told an Oireachtas committee today.
"There's certainly a risk to 2023, and more likely, maybe the 2024 corporate tax number, that's just on where the sectors are going," he added.
Ireland is hugely reliant on multinationals that employ over 275,000 people, or one in nine workers.
Jobs growth among foreign-owned firms - which includes other large sectors such as biopharma, medtech and financial services - hit record levels in the first half of 2022.
But since then a number of tech companies including Facebook parent Meta Platforms, Twitter and digital payments firm Stripe have laid off Irish staff as part of global cutbacks.
Highlighting how vulnerable Ireland's public finances are to a more severe multinational shock, McCarthy noted that just 10 firms account for 36% of all the tax paid in the country, when
the income tax of their highly paid workers are included.
The surge in corporate taxes pushed Ireland's budget back into a small surplus this year. The surplus is expected to grow to 2.2% of gross national income next year, allowing the Government to put €6 billion of corporate receipts aside into a reserve fund.
Speaking at an Oireachtas committee Mr McCarthy said around 25% of the workforce pays well over 75%of total income tax in the state.
A number of officials from the Department of Finance were appearing before the Public Accounts Committee.
While the corporate tax for this year is substantial, Mr McCarthy is "more worried about later years, especially if there is a shock to the ICT (information and communications technology) sector".
He warned that there is "certainly a risk to 2023, and more likely the 2024 corporate tax number".
There are "risks" to "quite a significant portion" of corporation tax which is "vulnerable, or unlikely to re-occur in future years", Emma Cunningham, Assistant Secretary at the Tax Division, agreed.
Fianna Fáil TD Paul McAuliffe asked if rising interest rates will hit the public finances, particularly in servicing the national debt.
Ireland has a "high level of debt", Mr Hogan accepted but revealed that 98% of it is on fixed rates.
He commended the NTMA for having "smoothed out and lengthening Ireland's debt profile", which has an average maturity of 15 years, "one of the longest average lifes in Europe".
Mr McCarthy added that the NTMA "has €35bn of cash reserves it borrowed during the 0% that we've had", which will absorb the rate hikes in the short term.
These "cash buffers" have been "very effective", he said, and the cost of servicing the debt "has moderated over the last couple of years".
Ten years ago servicing the national debt was consuming 30% of all revenue, Mr McCarthy revealed, whereas now it is costing 3%.
Bailing out Anglo Irish Bank will cost taxpayers €34bn, Des Carville, Head of Shareholding said.
This is because the "recovery from IBRC [Irish Bank Resolution Corporation] will be less than a billion euro" of the €35bn the exchequer pumped into it.
However, the State made a profit of €2.1bn on the €4.7bn it injected into Bank of Ireland during the economic collapse, he noted, while AIB will have cost taxpayers €4.4.bn.
Ireland's payments to the EU will rise by almost 30% - or almost €1bn a year - over the next five years, the committee heard.
Last year, the State paid €3.5bn to Brussels, and this will rise to €4.45bn by 2027.
This is because "our national income is going up much more rapidly" than other states, a department official said.
