Mr. John McCarthy:

I am grateful for the opportunity to present the Department's views on the sustainability of corporate tax receipts. I am accompanied by John Palmer, the principal officer leading the fiscal team in the Department, and Rónán Hession, from the business tax team. By way of background, in 2015 corporate tax receipts rose by nearly €2.3 billion, a 50% increase. Figures from the national accounts - GDP, GNP and so forth - show an increase in the corporate tax base, that is, corporate profitability, of a similar magnitude that year. Even after allowing for depreciation, so-called net operating surplus rose by over 30% that year. On this basis, it would appear the increase in corporate tax receipts was a one-off level change or a step change in the level of receipts. In 2016, receipts rose by a more modest 7%.

As a result of these developments, corporate tax receipts in 2016 accounted for just under 16% of total receipts while the long run average is around 14%, which can be seen in figure 2. Figure 2 also shows that between 2007 and 2014 corporate tax receipts as a share of total tax revenue fell, in part as a result of SMEs carrying forward previously accumulated losses. In addition, parts of the domestic financial sector which had previously been large payers of corporation tax recorded significant losses during this period. One factor behind the large increase in receipts would appear to be the increased liability arising from the fact that losses accumulated during the crisis are now being exhausted. In 2015, for instance, there were nearly 8,000 companies paying corporate tax that had no corporate tax liability the previous year. Mr. Keith Walsh will go into more detail on this shortly. These firms accounted for around €200 million in additional revenue that year.

On the concentration ratio, which can be seen in figure 3, the concentration of corporate tax receipts in a relatively small number of sectors and firms is, as always, a concern. The dominance of the multinational sector in our national accounts has been well documented but figures produced by the Revenue Commissioners show the dominance of large firms in corporate tax receipts also. Last year, the top ten payers accounted for 30% of total corporate tax receipts. The Department has consistently highlighted this concentration as a risk in recent years.

In terms of the policy response, as the committee knows a key policy failure during the bubble period was to increase expenditure and reduce direct taxation on the basis of revenues that ultimately proved transitory. While it is probable that these corporation tax receipts are not transitory, it is prudent to adopt a cautious approach. In this regard, the role of the co-called expenditure benchmark, which is used in the fiscal rules, is crucial in that it reduces the probability that windfall tax receipts are used to finance expenditure. It is based on trend revenue growth over a ten year timeframe. Second, it is crucial that the medium-term objective of a balanced budget in structural terms is achieved next year. Finally, it is important to build up fiscal safety buffers. Targeting a debt to GDP ratio of 45% from the mid-part of the next decade, growth permitting, is an important part of this, as is the so-called rainy day fund which is to be established from 2019 on, that is, once the budget is balanced in structural terms. These policy issues are currently under review and updates will likely be provided in the forthcoming summer economic statement.

Finally, it is important from a policy perspective to have a greater understanding regarding the sustainability of corporate tax receipts. In this regard, the Minister for Finance, Deputy Noonan, has asked Mr. Seamus Coffey, chairman of the Irish Fiscal Advisory Council, to undertake a review of the sustainability of such receipts. The report is due to be submitted to the Minister at the end of this month.