Michael Noonan (Limerick City, Fine Gael) | Oireachtas source

I thank the Senator for his comments. I advise him that there are no active cases in the European court that would result in any additional tax being paid to the Irish Exchequer. The issue at the heart of the recommendation is the application and use of non-cyclical tax receipts. Ireland is bound by EU fiscal rules and from 2016 our compliance will be assessed under the preventive arm of the Stability and Growth Pact. The expenditure benchmark will, therefore, provide the anchor for fiscal policy in the medium term. In practical terms, this means that from 2016 onwards, there will be a fixed amount of expenditure or fiscal space available in the annual budget. This fiscal space will be derived by reference to the potential growth rate of the economy which is independent of tax performance. This means that future Government expenditure will be decoupled from cyclical or windfall tax revenues so as to ensure increases in public expenditure will be sustainably financed and safeguarded from dependence on cyclical revenues.

In terms of extra tax payments which have been received by the Exchequer, the public finances are improving, with a broad and growing tax base providing stable funding for vital public services. The reformed budgetary framework and fiscal rules are designed to protect the public finances and ensure the mistakes of the past will not be repeated. Underpinning recent budgetary policy, for example, has been projected 15% growth in taxes and PRSI between 2014 and 2016, while in the corresponding period expenditure is forecast to grow by just 4%. This favourable differential has facilitated the Government’s successful focus on deficit reduction.

Regarding our strong corporation tax performance in 2015 and the forecasts for 2016, a reversion to more normal levels of growth in corporation tax receipts is prudently assumed for next year. Under the new fiscal regime, non-cyclical receipts cannot be utilised for public expenditure purposes, although they can be applied to reduce the national debt which remains the biggest internal risk to the economy.

Taking account of cash and liquid assets, including those held by the NTMA and the Ireland Strategic Investment Fund, our net debt position will be 80% of GDP by the end of the year. This debt level, while sustainable, is too high. Debt reduction is a critical goal as building our fiscal capacity or ability to borrow is the best way to mitigate the risks from unforeseen events.

To address the suggestion of the establishment of a sovereign wealth fund, I remind the Senator that the State already has the Ireland Strategic Investment Fund, ISIF, which is available for investment in commercial projects that also yield an economic return to the State. The fund has assumed the resources of the National Pensions Reserve Fund, NPRF, and will invest them in accordance with its mandate of promoting economic activity and employment within the State. We are already beginning to see that the ISIF is having a positive impact on the economy. Its first economic impact report from July advised that by the end of 2014, 79 Irish companies and projects with a combined annual turnover of €472 million were benefiting from ISIF investment. Furthermore, approximately 8,362 jobs were supported directly and indirectly by ISIF investments. At 30 September 2015, the ISIF had some €7.472 billion available for investment and will continue to leverage its resources by seeking co-investors. It can be expected to more than double the funds available to support economic activity and employment in the State. It is my view that the fund has enough resources to fulfil its mandate at the current time.

On the basis that we have the ISIF and given my explanation of EU fiscal rules, it is clear that there is not a sufficient case for seeking a report along the lines suggested by the Senator. Therefore, I am not accepting his recommendation.

To return to the issue of additional corporation tax receipts which came in strongly this year, the Revenue Commissioners advise that they were due to increased economic activity. Economic activity has increased substantially this year. The Central Statistics Office figures published this morning indicate that the economy was growing at 7% for the first nine months of the year. Obviously, an economy growing at a rate of 7% is generating a lot of tax. In nominal terms, the economy is growing at a rate of almost 11%. That is what drives the size of GDP and, to an extent, the buoyancy of tax receipts. The other point to make is that the take from corporation tax is exaggerated. Of all the taxes we have collected in the first 11 months of the year, corporation tax, even at an enhanced level, represents only 15% of the total tax take. It is by no means the tax on which we are depending to fund expenditure programmes or tax reductions. That said, it is very important and I am glad that there is an extra take coming in.

As well as the explanation from the Revenue Commissioners that there is increased economic activity, quantitative easing has brought down the value of the euro. A lot of orders in FDI companies are denominated in US dollars; there is, therefore, a value advantage from quantitative easing which has helped Ireland more than other countries. If the companies concerned are making more money, they pay more tax.

The statistics published this morning are very interesting. They show an enormous level of investment in research and development. When I started amending the corporation tax regime, I got rid of the so-called "double Irish" which was a residential rather than a tax law. I was hoping some of the FDI companies operating here would bring their intellectual property onshore and there is evidence from this morning's statistics, with the huge increase in investment in research and development, that a lot of it is being brought onshore. If it does come onshore, of course, it will be liable to Irish tax. We attempted to close a loophole that was causing us reputational damage and one of the consequences seems to be an additional tax take as foreign companies, instead of having intellectual property on a Caribbean island, are headquartering in Ireland and basing their intellectual property here too. Apart from the tax take, it also puts deeper roots under FDI companies because once serious research and development are conducted in Ireland, the base is more stable than previously.

We are looking at a good picture and I do not think we are going to be hit by some unexpected issue which will cause corporation taxes to fall away. The Revenue Commissioners have advised that they can include all of the extra taxes in the base for next year, with the exception of around €300 million, which relates to repayments due to some companies. They are not suggesting to me there is any reason to be doubtful about the flow of corporation tax next year. Of course, the increased flow above that forecast has continued for the past three months of the year, which means that the figure included in the 2016 Estimates on budget day has been exceeded already by the returns from corporation tax, but we are not going to change the figure. This means that in the national accounts for 2016 we are actually showing a reduction in the yield from corporation tax on the figure for 2015. I did not do this deliberately.This was the way the numbers ran because we never know in October how the year will end up. It means that there is a tax buffer built in for the next Government. If the same amount of tax comes in from the corporate side next year, there will be approximately €525 million not assigned. If there is any falling away, there will be a buffer which makes it easier to make ends meet. We are in a good position. The figures for this morning show 7% growth for the first nine months of this year. That will probably come back a little bit for technical reasons. In the last quarter of last year, there was very strong growth and because the base from which we will compare the last quarter of this year is so strong, we may come back to 6.5% or 6.6% for the year. The budget figure was 6.2% and I am confident of not only reaching but exceeding that. Many things are going well and we can only hope they continue.