Economist and UCC academic, Seamus Coffey, former chair of the Irish Fiscal Advisory Council (IFAC), has described projections that Ireland's surpluses will total €65 billion over the four years to 2026 as not real.
He said there were "some enormous figures being put about" about the surpluses that might arise in the coming years, but those were "projections done on a no-policy-change basis, as if the government is going to do nothing and change nothing over the next four years".
However, he said big surpluses were nevertheless likely, and that "even still, surpluses of €6-€8-€10 billion are huge amounts of money".
Mr Coffey also said Ireland could not rely on corporation tax receipts into the future, because most of it was coming from large US companies and was at the mercy of US political change. Because of corporation tax, he said, the US tax system was almost more important in Ireland than the Irish tax system itself.
The Department of Finance Stability Programme update for April projected a general government surplus for this year of €10.01bn, for next year of €16.2bn, for 2025 of €18.1bn, and for 2026 of €20.8bn, amounting to a cumulative surplus of €65.2bn.
However, Mr Coffey, (chair, Fiscal Council, 2017-2020), said though the projection totalled €65 billion, "that's not necessarily something that's going to happen."
"Those projections are done on a no-policy-change basis, as if the Government is going to do nothing and change nothing over the next four years. But of course, we're going to have a budget in October, we had a budget last year that spent €11bn — and we have budgets down the line as well", he told Prime Time.
He said government changes on the spending, tax and capital investment side would use up some of the funds, and while we would see "big surpluses", he did not think they "would be anything like" the total projected.
Within decades, Ireland has transformed from 'poor man of Europe’ to an embarrassment of riches. It has been called ‘the Irish miracle’, but there was none.
Instead, what’s been dubbed ‘leprechaun economics’— unreal GDP growth — is at play — in Ireland’s case, caused by large multinationals relocating assets to pay low corporation tax there and to avoid paying higher taxes elsewhere.
Though this has led to real jobs and growth, with jobs in pharmaceuticals and tech feeding wider business and employment, and the bumper tax receipts that come with it, it is the growing corporation tax revenues that are the stuff of legend.
Seamus Coffey said it had to be remembered that such corporation tax was "not a tax in the traditional sort of textbook view of tax" being a withdrawal from the economy".
"With this corporation tax, this is an injection; it's not coming out of Irish people's pockets", he said.
Some of the reported ‘pot of gold’ is real and already exists. Mr Coffey pointed out that funds from the former National Pension Reserve Fund now located in the Ireland Strategic Investment Fund (ISIF) amount to around €9bn, with a further €6n now held in the new National Reserve Fund.
"So, across the Strategic Investment Fund and the National Reserve Fund, at the moment we're looking at about €15 billion", he said.
Government spending is increasing. Last year’s budget alone was €11bn, and if a general election waits until 2015, two more are due before then. Already, some government party TDs, including three Fine Gael junior ministers, are advocating to spend more, rather than leave the pot for a possible Sinn Féin government later.
But behind the crock of gold, whether it is €15bn, €65bn, or a combined €80bn, a mountain of debt remains. National Treasury Management Agency figures for April show gross national debt standing at €235.9bn.
Mr Coffey said that for Government and Opposition, the options come down to using the money to pay off some of that €235bn debt; to build a savings fund to cover future costs such demographics, health and pension costs; or to "ramp up capital spending to deal with some of the infrastructure bottlenecks that the economy is clearly facing".
However, he said that with the unemployment rate below 4% and a shortage of labour, the economy is already operating at close to capacity, so the risk was that extra spending could lead to higher levels of domestic inflation.
Mr Coffey also said that if and when the OECD agreed 15% global minimum tax rate for large multinationals is put in place next year, Irish tax receipts will rise further, and although the first pillar of the OECD deal might have a future negative impact for Ireland, he predicted "that would potentially be more than offset by the positive revenue gain from going from twelve and a half to 15%."
Seamus Coffey said the biggest risk to Irish fortunes is uncertainty and an over-reliance on corporation taxes from US multinationals.
"The levels we're seeing now, heading for 25 billion euro on an annual basis, this is a huge amount of money, it's €5,000 for every single one of us, it is absolutely enormous on an annual basis" he said. "And I think the risk is, and it's a clear risk, that given that we can't control the rise of it, we've no real way of controlling whether it could fall."
He said Ireland could not rely on corporation tax receipts into the future, particularly if there were changes in the USA, "because most of this is US companies, and the US tax system here is more important, almost, than the Irish tax system."
