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The Parliamentary Budget Office (PBO), an independent unit within the Oireachtas that scrutinises the State’s finances for TDs and Senators, says there is evidence of a “dual economy” between multinationals and domestic businesses here. It also warns that the Government needs to close the fiscal deficit as the economy recovers, but must “strike a balance” between this and investing to spur growth and in infrastructure.
In its pre-Budget 2022 commentary, the PBO also raises “concerns about the resilience” of the State’s corporation tax receipts due to an overreliance on multinationals. It also warns that it is “unclear” if the deficit path in the Government’s Summer Economic Statement meets European Union rules.
“While Ireland’s economy is forecast to grow strongly this year, it is important to be aware that there is a difference between the performance of the multinational and the domestic sector,” said Annette Connolly, the director of the PBO.
In its commentary, the office highlights that multinationals based in Ireland are making large profits “while small domestic companies are less likely to”.
It says the “duality” between the multinational and domestic sector economies is evident in the State’s finances, as corporation tax receipts rose 8.7 per cent or almost €1 billion last year, driven by foreign investors.
“Such receipts are now at their highest level and represent 20 per cent of total tax revenue in 2020. There are concerns about the resilience of these receipts, especially due to global corporation tax changes,” says the PBO.
While it expects little change in tax policy in the upcoming Budget 2022, it says that medium-term spending increases to which the Government has committed suggest “a need to also increase tax revenue by broadening the tax base, reducing tax reliefs and/or increasing rates, while at the same time reducing the reliance on multinational companies”.
Cabinet update
Meanwhile, Minister for Public Expenditure Michael McGrath says he has updated the Cabinet on the State’s spending so far this year, and on spending plans for Budget 2022.
The Minister said that the State’s overall spending to the end of August was €53.4 billion, or €1.7 billion before profile, or what was expected. He also provided Budget 2022 spending estimates showing core spending would rise by €4.2 billion next year, comprising a €3.1 billion increase in current spending and €1.1 billion in capital expenditure.