Minister for Finance Paschal Donohoe said he plans to "eliminate" the State's high level of pandemic-related borrowing over the next two budgets. He also warned that an additional €1 billion in corporation tax this year could be gone by 2023.
Speaking at a food and agribusiness event hosted by professional services firm Ifac, Mr Donohoe said he was not considering any further changes to the Government's budgetary strategy beyond what was set out in its recent summer economic statement (SES) despite better-than-expected tax receipts in recent months.
Framework
"Things have improved since then [when the SES was published] but that is not going to lead to a change in our framework because some of the changes that have happened since June, I've no guarantee those changes are going to be permanent," he said.
Mr Donohoe said his focus was “now on ensuring that by 2023 we have eliminated all the high levels of borrowing” necessitated by Covid.
He noted that the State has borrowed €34 billion more than it was originally planning as a result of the pandemic, while suggesting that getting rid of the deficit could not be achieved overnight.
“To eliminate all of our borrowing across a single budget, I think, could be economically risky,” he said.
“To attempt to do it over three budgets creates the political risk that it will never happen. So I’m doing it over two budgets, which is what the Government has agreed to, I believe is the safe and sensible way of dealing with it.”
Regarding the recent bounce in corporation tax receipts – exchequer returns for August showed the business tax has so far this year generated €7 billion – €859 million more than expected – Mr Donohoe said there is every prospect that the extra €1 billion could be gone by 2023.
“We already have risks in the reliance that we have on corporate tax,” he said.
Ireland’s corporation tax base is increasingly concentrated around big multinationals. The top 10 largest firms accounted for just over half the near €12 billion in revenue generated from last year while global tax reforms, including the prospect of a minimum global rate, pose a significant risk.
“So even though the extra money has come in in corporation tax, there is every possibility that in a couple of years that corporation tax revenue, the additional bit, won’t be there,” Mr Donohoe said.
The Minister said he was not frustrated by the country’s new financial metrics but had “a growing sense of relief” that the huge damage done to employment by the pandemic was “beginning to lift”.
He said there was the prospect of having fewer than 100,000 people on the pandemic unemployment payment by October, down from 640,000 at the high point.
Figures
“While our borrowing figures are beyond what I could have comprehended in a non-Covid environment, they are lower than I expected them to be, and indeed forecasted them to be last April,” he said.
On the recent pick-up in inflation and the supply chain issues affecting the Irish economy, Mr Donohoe said these challenges were affecting the global economy.
“Because supply is going to be constrained this is going to ration demand [across a range of products],” he said.
Ifac’s latest sentiment survey suggests that while confidence among agrifood businesses here has risen in recent months amid the lifting of restrictions, a significant number of firms are reporting difficulties to do with rising costs, recruitment and Brexit.
More than two-thirds (71 per cent) reported an increase in costs this year, from transport and energy to raw materials and packaging, “an issue, in some cases, that could contribute to food price inflation in the coming months,” the report warned.
