Government will not rely on corporation tax receipts for spending, Donohoe warns

Minister tells business leaders in Dublin war in Ukraine will change economy and stresses need to enhance SME links with multinationals

The Government will resist calls to spend corporation tax windfalls over fears the receipts could dry up in the future, Minister for Finance Paschal Donohoe has said.

Mr Donohoe was addressing an audience of 1,200 business representatives at the Dublin Chamber annual dinner in the Convention Centre on Thursday night.

“As you are all aware, we have seen a rapid jump in tax revenue from this source in recent years,” he said. “To put some numbers on this: in 2019 corporate tax receipts were €11 billion, this year they will amount to over €21 billion.

“Perhaps not surprisingly, there have been numerous calls to spend these receipts. Government has resisted – we felt it would be inappropriate for public spending to deviate from existing plans.

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‘Transitory’ revenues

“The key factor behind this approach is the uncertainty regarding future tax receipts from the corporate sector – it is absolutely imperative that Government does not build up permanent spending commitments on the basis of revenues that may prove transitory.”

Mr Donohoe said he “strongly suspects” that the Covid-19 pandemic and Ukraine war “will be catalysts for major structural changes in the economy”.

“While globalisation may not go into reverse, I think it will change,” he said. “For instance, ‘just-in-time’ supply chains may be replaced by ‘just-in-case’ supply chains as firms place a greater emphasis on security of supply than on cost efficiencies.”

Domestic entrepreneurship

The Minister also said efforts would be made to forge closer links between Ireland’s multinational business sector and indigenous companies here.

“Let me briefly highlight one area that I think will be fundamental to driving living standards into the future and that is the importance of strengthening linkages between the multinational sector and what might be termed the SME sector,” he said.

“In Ireland we have a strong track record in attracting inward investment, usually in high-value-added sectors. We also have a good record in domestic entrepreneurship. Where we are lagging is in deepening the links between these two broad sectors.

“If we can generate a more symbiotic relationship between these sectors, I think it will greatly enhance our capacity to absorb the economic shocks and shifts that are now under way,” he said.

Colin Gleeson

Colin Gleeson

Colin Gleeson is an Irish Times reporter