That Ireland relies heavily on a few big US firms for a large part of its corporate tax revenue has been clear for some time. But new research from the Fiscal Advisory Council (IFAC) underlines the increasing concentration of the companies paying much of this money to the exchequer. In 2024, just three big multinationals were responsible for 46 per cent of all corporation tax, and the biggest two payers were responsible for almost 40 per cent of this.
This is a dangerous level of concentration. Even if the short-term signals for receipts this year remain strong, Ireland is relying on the fortunes and decisions of three big companies – two in technology and one in pharma – for €13 billion in annual corporate tax revenue. These companies are also big income tax contributors.
This means that to forecast the trend in Irish tax revenues a key input is the performance of what are believed to be the two tech companies involved – Microsoft and Apple – and the pharma company, probably Eli Lilly, which is profiting from new weight loss drugs. Fortunately, the short-term indications are good and the exchequer will benefit from an increase in the corporate tax rate paid by these big companies to 15 per cent this year.
However, in the years ahead nobody knows what their profitability might be, where they will manufacture key products or undertake valuable services and what their tax structures might be. US president Donald Trump’s efforts to attract investment back to the US are one clear risk factor.
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Some measures to reduce risk have been taken. Cash has been put away in two special funds by the previous government and the current one, providing a welcome cushion. However, a lot of the buoyant revenues have also gone to support increases in day-to-day spending. This creates a dangerous exposure in the years ahead.
The money put aside in the two funds could help the State get over a few difficult years. But as was clear from the financial crash, this kind of emergency reserve only goes so far if there is a structural – or long-term – fall-off in tax revenues.
In the light of the latest research from the Fiscal Council, the Government needs to reassess its budgetary approach. It is essential that State investment spending is maintained at a high level – and that the projects involved are delivered efficiently. But the pace of day-to-day spending growth needs to slow, to allow more funds from the current windfall to be set aside.
This is not austerity – or anything like it. There is room for healthy current spending growth, just not at the level seen in recent years, when already- generous budgetary allocations were overrun. The decisions involved will not be easy. But it is a lot better to act now than to be caught in a few years time in a budgetary bind, having to consider cutbacks or tax increases. Or both.
