James O'Connor (Cork East, Fianna Fail)
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137. To ask the Minister for Finance the position regarding the forecasted income from corporation tax in 2023; and the potential ramifications of a global recession on corporation tax income in Ireland. [55741/22]

Paschal Donohoe (Dublin Central, Fine Gael)
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The forecast for corporation tax was published as part of the full suite of economic and fiscal projections in Budget 2023. For next year, these receipts are projected at €22.7 billion. To put this in context, that would be over five times the corporate tax yield a decade ago.

The increase in corporation tax we have seen in recent years is in many respects a positive development. It reflects well on Ireland as a top destination for highly profitable multinational firms. It also means that, during the pandemic, we had to borrow less.

However, the corporation tax base is highly concentrated. The top ten firms now pay well over half of all corporate tax receipts received by the State: this leaves the tax base for this revenue stream vulnerable to the business decisions of a small number of multinational firms.

I have warned many times about the vulnerabilities that this poses to the public finances. We know from history that windfall revenues are not an appropriate basis for permanent expenditure commitments. A shock to the multinational sector could have a significant negative impact on corporation tax revenues.

In addition to the negative implications of a potential global economic downturn on receipts, Government is also planning for a reduction in the corporate tax yield as a result of changes to the international tax regime under the BEPS agreement. My Department’s current estimate is that €2 billion could be lost, relative to baseline, as a result of these changes, but the actual impact could, of course, be far greater.

In Budget 2023, my Department published an estimate of the fiscal position excluding windfall corporation tax. This new metric – the underlying general government balance or GGB* - presents a more accurate picture of the public finances. This year, we are expecting a headline surplus on the order of €1 billion. However, if excess corporate tax were excluded we would instead be facing a significant deficit in the region of €8 billion.

To mitigate this risk, Government is setting aside €6 billion, across two years, of this windfall to rebuild our fiscal buffers through the National Reserve Fund. This will give us the fiscal firepower to address future challenges without risking these receipts becoming part of the permanent expenditure base.