There is a strong case for establishing a longer-term savings vehicle to bridge the gap between today's temporarily strong revenue from corporation profit tax and tomorrow’s forecasted permanently strong expenditure requirements.
That’s according to the Tax Strategy Group’s report on corporation tax which argues the benefits of establishing a long-term public savings vehicle would be two-fold.
"Firstly, it would help to ensure that potentially transitory windfall corporation tax receipts are not used as a basis to introduce long-term expenditure increases or tax reductions," the report states.
"Secondly, such a fund could contribute to meeting known future budgetary pressures, including demographic change and financing the climate and digital transitions."
The Tax Strategy Group is comprised of officials and advisors from across different government departments.
It’s chaired by the Department of Finance and examines possible options when it comes to taxes in the upcoming Budget.
The papers are published annually in advance of the Budget.
The TSG says the high concentration of corporation tax receipts within a small number of firms here in Ireland is a "recognised vulnerability".
"It means that receipts from this tax head are highly vulnerable to the business decisions of a small number of multinational companies," the report states.
"As Ireland has been consistently successful in attracting many such leading companies to locate here, and given our level of integration with the global economy, it is not surprising that our corporation tax base has become concentrated."
The TSG outlines how both the overall quantum of corporation tax collected and the share of overall tax revenue accounted for by these receipts are now at historically high levels.
This means that more than €1 in every €4 of all tax collected in 2022 was sourced from corporate tax payments, it explains.
"This upward level shift, occurring over a very short timeframe, raises legitimate questions regarding the sustainability of this revenue stream," the authors add.
The report points to an analysis by the Department of Finance last year which examined to what extent corporation tax receipts were windfall in nature.
It found that, while there is considerable uncertainty around how much of the shift is permanent, out of the total €15.3 billion corporation tax receipts in 2021, €4-6 billion could be windfall or transitory in nature.
While for last year the department has estimated that around €11 billion of the total €22.6 billion collected could be seen as windfall.
The report also notes that forthcoming changes to the international tax regime under the OECD’s Two Pillar agreement are likely to negatively impact on Irish corporation tax receipts.
Pillar Two will see a minimum effective tax rate of 15% applied here to businesses that have group revenue of €750m in at least two of the previous four years.
The TSG report states that Revenue has estimated that around 67 groups located in Ireland will likely meet that level, with just under 1,600 other in-scope multinational groups possibly having constituent entities here.
The report also details the extent to which over the past decade there has been a notable growth in corporation tax receipts, from just over €4 billion in 2013 to over €22 billion in 2022.
"This growth has become more pronounced in recent years, with CT receipts more than doubling since 2019," it says.
"Last year represented the eleventh consecutive year of annual growth from the low point of €3.5 billion in 2011. Corporation tax as a share of total tax receipts has also more than doubled since 2013."
