Tax Yield

Dáil Éireann Debate, Wednesday - 14 July 2021

Wednesday, 14 July 2021

Questions (88)

Paul McAuliffe

Question:

88. Deputy Paul McAuliffe asked the Minister for Finance the estimated additional income the State would receive if corporation tax was increased to 15%; and if he will make a statement on the matter. [38389/21]

Written answers

Minister for Finance

On a straightforward, mathematical basis there is a large theoretical yield from increasing the corporation tax rate for trading income. However, the Economic and Social Research Institute (ESRI) reports that research from both the United States and Europe suggests that foreign direct investment (FDI) and the decisions of multinationals to locate in Ireland are highly sensitive to rates of corporation tax. Therefore, increasing the corporation tax rate would likely lead to lower levels of economic activity, behavioural changes in the locational decisions of multinational companies and employment in the multinational sector. As a result of the difficulty of predicting and quantifying these impacts, particularly in the current economic climate, it is not possible to accurately or robustly estimate the potential yield from the increases proposed by the Deputy. I would note however that ESRI research in 2011 estimated that reducing Ireland’s corporation tax rate from 40% in 1994 to 12.5% in 2003 added almost 4% to the level of economic output in 2005 and around €2 billion in corporation tax revenues.

Furthermore, while corporation tax is statutorily levied on the profits of businesses, the ESRI states that researchers have concluded that a large share of the burden is likely to be borne by workers in the form of lower wages. This can arise from companies deciding to invest less, leading to lower capital and lower labour productivity and wages. As the ESRI found that small and medium enterprises (SMEs) predominantly finance their investments in fixed assets, intangible assets and staff through internal funds, raising the rate of corporation tax would hamper their ability to invest and grow.

Question No. 89 answered with Question No. 82.