Dr. Kieran McQuinn:

We are engaged in a programme of research with the Department of Finance examining taxation matters and the stability of taxation aggregates to overall economic activity. Recently, we looked at the responsiveness of income tax to overall economic activity. I have been involved in other research with an international colleague examining the main headings of taxation receipts such as income tax, corporation tax and excise. We examined what is the most stable outcome when one works out the variances between them. Income tax in an Irish context is a stable source of tax, an area that Patrick Honohan examined several years ago. Consequently, it is seriously considered whether to reduce it in budgets. Over the past several years, corporation tax has surged.

One point I would make about corporation tax, and many officials in the Department of Finance also like to make this point, is that it gets a huge amount of attention and while there are many good reasons for this, it only counts for, on average, 12% of the tax take whereas income tax accounts for around 40% and VAT for 29%. While corporation tax is important, it is not massively important in comparison with other taxation headings. Interestingly, the real problems we encountered back in 2007 and 2008 were not as a result of a collapse in corporation taxes but a collapse in the housing related taxes and in income tax.

In the recent past, corporation taxes surged quite significantly. There was a considerable surge last year and the receipts up to July of this year indicate another substantial increase in corporation tax. However, that comes with quite an amount of uncertainty in that we do not really have a good understanding of how stable those tax receipts are. Is it the case that we may witness a dramatic fall off in corporation tax next year for some reason? We do not know. Corporation tax receipts are not as closely aligned to what is going on in the real economy as the other taxation headings like VAT and income tax. That supports the argument for maintaining a very broad tax base, as the Deputy has said, and ensuring that taxes like income tax remain a significant component of the overall tax take into the future.