Seán Haughey (Dublin Bay North, Fianna Fail)
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131. To ask the Minister for Finance the action he is taking to ensure that the public finances do not become too reliant on corporate tax; and if he will make a statement on the matter. [3072/23]

Michael McGrath (Cork South Central, Fianna Fail)
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The potential volatility and concentration risks related to corporation tax receipts are issues which my Department has repeatedly drawn attention to since 2015.

In September of last year, my Department published an analysis entitled De-risking the Public Finances - Assessing Corporation Tax Receipts. The purpose of the document was precisely to highlight, and quantify in so far as possible, the fiscal vulnerabilities stemming from the upward shift in corporation tax receipts, part of which is potentially windfall in nature.

The analysis showed that the share of overall tax revenue accounted for by corporation tax receipts is now at historically high levels. Receipts have been on a steep upward trajectory since 2015, reaching €22.6 billion last year, an increase of 230 per cent relative to 2015 and nearly twice the level recorded in 2021.

A level shift of such magnitude naturally raises questions regarding the sustainability of this revenue stream. The concentration of receipts within a small number of firms is an additional vulnerability, with over half of corporate tax receipts paid by just ten large payers.

My Department concluded that, in 2021, around €4 - 6 billion of these receipts were potentially windfall in nature. Given the large increase once again last year, my Department estimates that around €10½ billion is now windfall in nature.

As such, there is a compelling argument to treat a significant portion of corporation tax receipts as non-recurring. In doing so, we can address a key risk to the public finances, ensuring ‘windfall’ receipts are not used to fund permanent expenditure and thereby help ensure our country’s fiscal sustainability.

The paper also raises the possibility of ring-fencing some of this ‘windfall’ revenue and channelling it into a fund to create a buffer for the economy against future economic shocks and to provide support for long-term structural challenges. In the context of this analysis, the Government decided at Budget time to direct €2 billion into the National Reserve Fundlast year. A commitment was also made to transfer an additional €4 billion to the Fund this year.

In addition, in order to highlight this ongoing volatility risk, my Department published an estimate of the fiscal position excluding identified windfall receipts. This new indicator, the underlying general government balance, was published for the first time in Budget 2023and will continue to be published in the Department’s key publications to enhance transparency on this issue.