Oireachtas Joint and Select Committees

Wednesday, 8 December 2021

Committee on Budgetary Oversight

Fiscal Assessment Report: Irish Fiscal Advisory Council

Mr. Sebastian Barnes:

That obviously is an important change. In fact, it is a number of important changes in terms of the package internationally. As has been said, there is a lot of uncertainty about what will happen. A lot of the revenue is coming from a very small number of international companies that have very complicated businesses and which look at tax in very sophisticated ways. We do not have the information to understand how they might make decisions so there is a lot of uncertainty.

There are two parts to this. The first is the estimate from the Department of Finance that the changes to the tax base would cost €2 billion. That estimate has not been updated for a while so we do not know if that is still the Department's view, particularly given that a lot of the recent growth in corporation tax is probably due to international companies. Offsetting that is the raising of the rate but the Government has not provided an estimate on that. Mechanically, if the number of companies does not change very much, that is, if the base stays the same, we could be looking at a big increase in revenue from corporation tax. Also, to be fair, corporation tax has increased a lot in recent years because a lot of the companies involved are making a lot more money than they were previously. This is partly because of the pandemic and the shift to digital.

There are lots of moving parts to this. Our concern is the uncertainty but also if we lock in higher levels of corporation tax, which may persist for some time, that is a big risk down the line as we become more and more exposed to a volatile source of revenue that could go away over time if companies change their strategies. That is why we are arguing that the excess, from this point on at least, should be put into the rainy day fund.