Thursday, 16 December 2021
Department of Finance
The annual rate of consumer price (HICP) inflation rose to 5.4 per cent in November – the highest rate in over two decades. Inflationary pressures are not unique to Ireland however, with multi-decade high inflation rates of 6.8 and 4.9 per cent recorded in the US and euro area in November. However, this comes after years of inflation of around 1 per cent, with the price level in Ireland still well below the level it would have been had the inflation rate been in line with the ECB price stability target of 2 per cent over the last two decades.
The recent rise in inflation is partly explained by global factors, which are expected to ease over time, including oil price ‘base effects’, global supply chain disruptions and the imbalance between supply and demand that has emerged following re-opening. More recently, rising wholesale energy prices have added to inflationary pressures, with energy inflation of 28 per cent recorded in November. However, futures markets point to an easing in energy inflation next year.
At the time of the Budget, my Department forecast headline inflation of 2¼ per cent for this year and next, however, the recent rise in wholesale energy prices means there is likely to be upside to the projection for next year. Nevertheless, inflation is expected to ease over the course of next year as these factors fade, demand stabilises and supply catches up. However, the possibility of persistently higher inflation cannot be ruled out.
The Government is however, very conscious of the impact of current inflationary pressures and introduced a range of measures in Budget 2022 to protect households against increases in the cost of living. These include a personal income tax package worth €520m and a social welfare package of over €550m. The fuel allowance was increased by €5 per week to compensate lower-income households for higher energy costs as a result of the increase in the carbon tax. There were also increases in the allocation of Early Learning Care and School-Age Childcare to ensure childcare prices do not rise. Nonetheless, my Department will continue to monitor inflationary developments closely and respond as appropriate.
160. To ask the Minister for Finance his views on the recent comments by a person (details supplied) with regard to the potential for increased revenue to the Exchequer due to the planned increase in the minimum corporation tax rate from 12.5% to 15%; his plans to undertake an updated analysis on the impacts of a new minimum rate of 15%; and if he will make a statement on the matter. [62145/21]
It is important to recognise that Ireland’s corporation tax rate of 12.5 per cent will remain for the vast majority of Irish businesses. The threshold that will apply to the 15 per cent minimum effective tax rate is €750 million annual global turnover. Thus, the vast majority of companies in Ireland - over 95 per cent - will not be subject to these new rules, and will continue to be subject to corporation tax at a headline rate of 12.5 per cent.
My Department and the Revenue Commissioners previously estimated that the cost of the OECD agreement on a new tax framework to address the tax challenges of digitalisation could be up to €2 billion annually when both pillars come into effect. However, as I have stated many times, this is an extremely challenging exercise, both in terms of timing and magnitude. Although there are two pillars to this Agreement, it is important to understand that they are intended as integral parts of a single agreed solution. How they interact and the degree to which this interaction influences business behaviour is very difficult to predict.
At a superficial level, the application of a minimum tax rate of 15 per cent under Pillar Two could provide some uplift to domestic corporation tax revenues. However, this would be a static assumption which does not take account of how firms react to a new tax regime, or to potential changes in tax regimes in other jurisdictions i.e. changes to the tax base. Further, any uplift on Pillar Two would be countered by the potential cost of Pillar One. That cost remains highly uncertain as its technical implementation is still far from resolved.
It should also be stressed that what we have now is a broad high level agreement on the main features of a solution. Discussions are continuing and will continue into 2022 on how the agreement will be implemented in practice. As technical discussions on the implementation framework continue, officials from my Department and from Revenue will keep the position under review and, when and if necessary, my Department will provide an update on how the agreement is expected to impact the public finances.