Mr. Colm McCarthy:

Dr. Kinsella was careful to avoid predicting what is going to happen to corporation tax revenue. This is the big point Seamus Coffey and his colleagues were making. These receipts are inherently very volatile. In the 1990s we decided to have a low rate of corporation tax. We used to have a 40% rate for services companies and a 10% rate for manufacturing companies. That had to go and it was decided to do two things simultaneously. One was to have a low rate for everybody. The rate chosen was 12.5%. The second thing decided at that time, which people have forgotten, was to close many of the loopholes. There used to be a magnificent stunt one could avail of under section 84 of the Finance Act. Under this the banks, and many others, did not pay the 40% rate. We had a pretend rate of 40%, which many did not pay. The decision taken in the 1990s was to introduce a low rate of corporation tax with the snag that it must actually be paid. Many European countries pretend to have high rates of corporation tax but, if one looks at the data, they do not collect as much as one would expect given their high nominal rates. There is a lot of hypocrisy about corporation tax internationally.

In the period since the rate was introduced, for reasons on which I am not an expert, with the benefit of lots of lawyers and tax accountants, corporations have found endless ways to not pay even the 12.5%. They have also managed to route profit through Ireland, much of which really belongs to the US Department of the Treasury. There are weaknesses in the US tax code and, using international tax treaties, quick detours through the Dutch tax system, and so on, these outfits have been able to route a lot of taxable profits through Ireland, paying us some money while avoiding paying somebody else even more. This was not the intention of the corporation tax reforms introduced in the early 1990s. It is not what we set out to do but it is what has eventually happened.

To answer Deputy Lahart's question, these receipts are just very volatile. Mr. Coffey and his colleagues have said that a portion of the bonus unexpected receipts in recent years should not have been put into the State budget at all. We should have said "thanks very much" and used the money to reduce indebtedness. I agree with Dr. Kinsella that in the longer term we should seek to not be so dependant on this volatile type of revenue. The way to reduce dependence on it is to do precisely as has been suggested, that is, to use the unexpected corporation tax revenue to pay down debt.

On the other point about volatility, staff in the Parliamentary Budget Office have written some very interesting papers about volatility in tax revenue. Dr. Kinsella mentioned one of them. They have looked at a seven-way breakdown of tax heads, such as VAT, excise duty, and income tax, and at the volatility in each one. They could be broken down a bit further. There are a few volatile tax heads lurking inside some of these aggregates about which something could be done. I mentioned VRT. This could be substituted with fuel taxes and so on.

My final, very quick, point is that if the Government succeeds in getting everybody to drive electric cars - the Minister, Deputy Bruton, announced last Monday that we will all be driving electric cars in ten years' time - it will be a disaster for the Exchequer because electricity cannot be dyed green in the same way as diesel. The fuel tax component of tax revenues will become problematic if cars are powered by electricity. As I understand it, there is nothing technical that can be done about that. We are also now providing huge subsidies. We can afford to subsidise electric cars with benefit-in-kind relief and so on as long as nobody takes up the offer.

If people start saying that is a great idea and everybody races off and buys electric cars, those subsidies will have to be withdrawn. We will have to dream up a new way of taxing road transport. I am not against significant taxes on road transport at all but the way we do it will have to be reviewed. The tax strategy group mentioned this in its mid-year report last year. We may have to look at congestion charges, more modern methods of tolling and so on because we may end up without a big slice of the fuel tax.