Mr. Seamus Coffey:

The purpose of the exercise was to give a stylised example of the potential impacts, were one of the large FDI companies to leave. We focused on those companies that are also large payers of corporation tax. There are foreign companies in Ireland, say, in the retail sector serving the domestic economy, which would have a much larger impact on employment if they left. The exit of one of those is likely to be followed by a replacement. We will need the domestic retail sector to continue to be serviced. However, in the FDI sector there is a possibility for a company to leave and simply not be replaced at all. We wanted to assess what would happen if a sample company within that group were to leave.

The biggest relative impact would be on corporation tax, given the large payments made by a small group of companies. There would also be an impact on earnings and employment in the economy. Perhaps 4% of corporation tax receipts would leave the country if such a company was to leave, whereas the impact on employment would be approximately 0.1%, representing a much smaller overall impact.

In terms of mitigation, we have warned in previous reports that corporation tax receipts are at an elevated level and have almost doubled in the past number of years, particularly in 2015 when it increased by two thirds. Receipts from corporation tax are now close to record levels in terms of contribution to the Exchequer. We feel the economy is going through a strong upward recovery, but public finances have been benefitting from tailwinds, whether through additional corporation tax receipts or lower debt interest costs. These are all contributing to a strong position at present. However, we are warning that we cannot expect that to continue indefinitely. We could face a downturn in the economy for a variety of reasons, or we might experience losses of either revenue or employment in the foreign direct investment, FDI, sector. While the economy is performing strongly now, we should not commit all those resources to permanent increases in spending or tax cuts when we may need to use them in future to offset the impact of some of these potential problems. We should keep some of the benefits in reserve while we are getting them. We would like to have fiscal capacity to deal with an inevitable downturn, whether in the domestic economy or in the international FDI sector.

The issue with many of the risks we are raising is that the policy advice is the same - some of the resources should be kept in reserve.