Dáil Éireann Debate, Tuesday - 21 September 2021
216. Deputy Bernard J. Durkan asked the Minister for Finance if he remains satisfied that the taxation system in Ireland is sufficiently broadly based to avoid dependency on any one sector to such an extent that it might become a threat to the economy; and if he will make a statement on the matter. [45162/21]
View answerMy Department has developed the Annual Taxation Report in order to provide a long-term, strategic perspective on the evolution of taxation receipts since the financial crisis. This allows for the sustainability of tax revenues to be actively monitored so as to minimise fiscal vulnerabilities.
The most recent Report, published in August, demonstrates that Ireland’s tax system displays some structural characteristics that have made revenues less vulnerable to external shocks. Despite the Covid-19 pandemic, tax revenues fell by just €2.1 billion (3.6 per cent) last year. This is due in part to the strength in corporation tax revenues, which increased by nearly €1 billion (8.7 per cent).
That said, significant vulnerabilities remain including those relating to the concentration of corporation tax receipts among a handful of large payers, a risk which I have highlighted on numerous occasions. Indeed, my Department has published extensive work examining the future trajectory of, and potential vulnerabilities in, corporation tax receipts, including papers on Assessing Fiscal Vulnerabilities and Modelling Recent Developments in Corporation Tax (2019), as well as the Roadmap on Corporation Tax (updated 2021).
I have stated many times that given the inherent volatility of such receipts and prospective changes to international tax rules, we cannot rely on the current level of corporation tax revenues over the medium to long-term. As such, it is imperative that we put steps in place to address this dependency.
In this regard, medium-term fiscal planning will continue be based on the assumption of a decline in corporate tax revenues. Whilst the final outcome of the discussions on international tax reform remains unclear, the budgetary forecasts currently incorporate a €2 billion loss relative to the baseline by 2025.
In addition, the Commission on Taxation and Welfare will play an important role in independently considering how best the taxation and welfare systems can support economic activity and promote increased employment and prosperity, while ensuring that there are sufficient resources available to meet the costs of public services and supports in the long-term.
