Wednesday, 19 June 2019

Questions (29)

John Curran


29. Deputy John Curran asked the Minister for Finance the actions he will take on foot of the recent publication of the report of Irish Fiscal Advisory Council; and if he will make a statement on the matter. [25242/19]

View answer

Oral answers (6 contributions) (Question to Finance)

The report recently published by the Irish Fiscal Advisory Council raises significant concerns about our corporation tax, particularly about what is considered to be in excess. The report specifically suggested that the Government needs to make a credible commitment to not using potentially short-lived corporation tax receipts for long-lasting spending increases. In light of that recommendation, can the Minister indicate what budgetary changes he will make and what budgetary approach he will take to avoid becoming reliant on the significant increases we have seen in corporation tax receipts?

It is worthwhile to begin the answer to that question by acknowledging what we have already done. That is why the change in the value added tax, VAT, rate for the hospitality sector was so important. That kind of base-broadening, which never happened in the past, is part of what we need to do to reduce our future reliance on the corporate tax stream. Moreover, for the first time our budgetary figures for this year are built on the assumption of collecting less corporation tax this year than we collected last year. The value of that will depend on our ability to keep expenditure in a better place than it was last year.

Regarding what we are going to do in the future, next week I will outline two things. The first of these is a process by which we aim to gain a better view of the sustainability of our corporation tax receipts. Second, if we stick to the current fiscal rules, the current health of our economy might lead to future expenditure decisions that might create the risk to which the Deputy refers. In my paper next week, I will outline different options for the management of that risk. I hope we can debate them in the House during the coming months, with a view to making a decision on them in budget 2020.

I thank the Minister for his reply. The Irish Fiscal Advisory Council suggested that somewhere between €3 billion and €6 billion of corporation tax receipts could be considered in excess. What figure does the Minister regard as in excess?

The Minister mentioned broadening the tax base, but the reality is that everything accounted for by the increase in corporation tax revenue has already been spent on current expenditure or an increased capital budget. Therein lies the challenge. How do we roll back from that? It was a significant increase. If there is a shock to the economy the reduction in corporation tax revenue might be very quick. It might not be phased in over several years. It is important that we deal with it. I am specifically interested in the range of €3 billion to €6 billion. How much of that does the Minister regard as in excess?

Regarding the degree of risk, the estimate of €3 billion to €6 billion out of the total figure we are collecting in corporation tax is very high. In regard to its future accuracy, I note that this figure is difficult to quantify at this point. This is because a global process is now under way that will change the background to corporate tax policy in all developed countries. What are we going to do about it? I am starting efforts to understand how much of the tax that we are collecting is likely to continue in future. The trade-off will concern the degree to which tax continues to be levied where value is located. The more we go in that direction the better it is for Ireland. As against that, certain decisions may be made at a global level regarding the relationship between where tax is collected and where consumption occurs.

I thank the Minister. There are two sides to this coin. We obviously cannot continue to spend the full amount we claim in corporation tax, because the Minister clearly recognises it is not a sustainable source of tax. We cannot build an economy on that in the long term. That presents a short-term issue. What will the Minister's approach to the next budget be? Up to now we have been using our corporation tax revenue for current or capital expenditure. We have seen significant overruns. I really do not want to get into the detail of the national children's hospital, but we cannot have overruns like that if we are trying to cut back on capital spending. Finally, the Minister mentioned putting funding into the rainy day fund for Brexit, which is something I support. The following question must be asked. Should more of the surplus accounted for by corporation tax revenue that is considered to be in excess be put into that fund to address the inevitable cyclical change?

The first and most important thing we can do is run a surplus in our national finances. We will run a surplus this year, provided that we continue to deliver our expenditure plans as we did up to the end of May. If we deliver that surplus it will represent 0.2% of our national income, approximately €600 million of revenue, which we will not spend. The best and most effective thing we can do is increase that surplus so that if there is a change we are not spending all that we collect. Deputy Curran has not done this in his questions today, but I must make one point. On one hand I increasingly hear Members of the Dáil saying we need to ensure we are not reliant on corporation tax receipts in future. I accept that. That is why we need to run a larger surplus. On the other hand, Members say we need to spend more in other areas. We cannot do both. We are in the middle of trying to strike a balance that is sustainable for our economy and for the Dáil. The short answer to the Deputy's question of what we can do is that we can increase the surplus in the national accounts.