The Government is conscious that the rising cost of inflation is putting significant financial pressure on households. In order to alleviate this pressure, last week, Minister McGrath and I announced a €505 million package of measures to mitigate the cost of living pressures faced by households. This is a suite of policy measures targeted at the main underlying problem - higher energy prices. The increase in energy prices is primarily due to external factors such as higher oil prices and pandemic-induced bottlenecks in key regions. The rapid rebound in the domestic economy is also a factor.
These measures come on top of the measures already announced in Budget 2022 to support households – such as increases in social welfare rates as well as increases in tax bands.
While it is expected that the inflation rate will moderate from the second quarter of this year, I believe that it is appropriate for Government to respond to the increase in prices and help our citizens meet the challenges presented by the current cost of living, and that is what we have done.
I acknowledge that some sectors of the economy continue to trade profitably and perhaps even have experienced increased demand during the COVID-19 pandemic. However, all businesses, regardless of profitability, have faced additional costs in adapting to operate in accordance with public health guidelines – through the physical adaptation of premises to ensure social distancing, the provision of Personal Protective Equipment, and the facilitation of remote working.
We must acknowledge the important role played by innovative sectors of the economy. The growing digitalisation of business in recent years has allowed many parts of the economy to continue to function while others were forced to close. This has enabled home working and allowed trade in essential goods and services to continue. Furthermore, the fact that sectors of the economy have continued to function has allowed Governments to extend supports to other sectors of the economy that have fared less well, particularly in areas such as hospitality and retail.
As the Deputy will be aware, the trading profits of companies in Ireland are generally taxed at the standard Corporation Tax rate of 12.5%. Some of the main features of the current Corporation Tax regime are its simplicity and that it applies to a broad base.
Imposing additional taxes on certain sectors would involve increased complexity and could change the attractiveness of Ireland's corporate tax regime. While it is possible that imposing such taxes could lead to theoretical gains, it could also potentially lead to lower levels of economic activity and to companies passing the additional tax burden onto their staff, customers, suppliers or investors.
In addition it should be noted that Ireland’s Corporation Tax regime has been undergoing a process of significant reform in recent years. The Deputy will be aware that, on 8 October 2021, Ireland joined 135 other member jurisdictions of the OECD/G20 Inclusive Framework in reaching an historic two-pillar agreement to address the tax challenges that have arisen from digitalisation.
Pillar One will see a re-allocation of a portion of the income of very large companies from source jurisdictions to market jurisdictions. Pillar Two will introduce a global minimum effective tax rate of 15% on businesses with a global turnover of greater than €750 million annually.
Ireland has been constructively engaged with the Base Erosion and Profit Shifting (BEPS) project from its outset in 2013 and we have diligently reformed our tax system to ensure that it is in line with emerging international norms.
In consideration of the need for certainty regarding our corporation tax regime, and acknowledgment of the significant amendments being made to corporation tax internationally, I do not believe it is appropriate to introduce any additional taxes or levies on companies at this time.
