Corporation tax surge: People forget that in the story of the boy who cried wolf, the wolf turns up

State didn’t expect the surge in corporation tax in the first place, so it would be wise to assume it might not continue

“Ah sure he’s like the boy who cried wolf on this.”

My Leinster House interlocutor was dismissing the warnings from Minister for Finance Michael McGrath about corporation tax revenues, which have driven the astounding surpluses reported during the week when the Government published its Stability Programme Update. We can’t rely on them, McGrath warned repeatedly. His predecessor in that office, and partner in budget-making upstairs in the Department of Public Expenditure, Paschal Donohoe, is fond of making the same point. You will hear it plenty more times over the coming months.

But as far as lots of people in both Government and Opposition are concerned, the lads need to lighten up. Chill out. Be fine. Glass half-full, fellas. Don’t be the boy who cried wolf.

I fear a lot of people have forgotten their Aesop’s Fables. A rather important detail in the story of the boy who cried wolf is that the wolf actually turns up in the end.


To apply the analogy to our present circumstances, it would mean that the corporation tax receipts, currently gushing into the State’s coffers in a great cash tsunami, would start to diminish. The Department of Finance doesn’t have a clue exactly how much of it is unreliable. The figure the mandarins essayed this week was €12 billion. But once upon a time it was two, then it was six, so I suspect this is the latest iteration of a distinguished tradition of plucking figures from you-know-where.

But they didn’t expect the surge in corporation tax in the first place, so they are probably wise not to assume it will continue. Just look at the trend: in 2014, the number was just €4 billion; by 2018, it had jumped to €10 billion; this year, the estimate is €24 billion. Bet you a decent lunch it breaks €25 billion.

We often get lost in what Michael Noonan used to call “millins and billins”, so here’s some context: it costs about a hundred-odd billion to run the State every year. The education budget is about €10 billion; health is €24 billion; “compensation of employees” will cost €29 billion this year.

In this context, having a surplus of €10 billion this year is astonishing. On what the mandarins call a “no policy change” basis – ie, if politicians didn’t decide to spend loads of this money – the surplus would be €16 billion next year. And €18 billion the year after, rising to near €21 billion the year after that. Crazy money. One of the running jokes in the Department of Finance is about the couch they have, down the back of which money can be hidden away from spendthrift politicians. Well, they’re gonna need a bigger couch.

Barrage of demands

So what happens now? Paradoxically, the two budget ministers are about to have some of their most difficult months in the job. They will face a barrage of demands from their ministerial colleagues, from their leaders, from NGOs, the public service unions, from the Opposition, from friends and enemies alike, from the deserving and the undeserving, to share of their plenty – all of it amplified in a media debate which more often than not does not ask for costs or insist on context. And the catch-all defence – “we don’t have the money” – has just been blown away.

“There will be no restraint,” says one insider of the demands that will be made of the ministers. For finance ministers, days of plenty are sometimes more complicated than when times are lean. These are, of course, good problems to have. But the political challenge should not be underestimated.

Because these are not just economic decisions; they are intensely political. “The f**king economists,” one former minister used to say, “don’t have to run for f**king re-election.”

The next budget in October may be only 12 or 13 months before the next general election. It’s certainly no more than 16 months before it. If the Government retains the most potent political tool of all – the power of executive action – then the spending decisions contained in a budget are the most visible and easily communicated use of that tool.

Within Government, there is an appreciation that the massive giveaway in last year’s budget brought modest but tangible political payback. A bit of a lift in the polls, a halt to Sinn Féin’s gallop. So we can expect something similar again this year. I expect hefty public spending increases, a raft of once-off measures, a generous tax and welfare package, and – around the same time – a generous public sector pay deal. It would perhaps be unreasonable to expect otherwise, and all this should be doable without being completely reckless.

But – and it’s a big but – the recurring spending increases must be kept at a manageable level, so that they can be afforded if the corporation tax bonanza peters out. The rainy day fund should be bolstered and the enlarged fund to pay for future liabilities that Michael McGrath has floated should be bunged a few billion euro more. The Government can spend a lot of money where it is needed. But it must also provide for the future.

This is a massive test for the budget ministers and for the Government. But also for the country as a whole: are we able to not lose the run of ourselves? Can we spend prudently to improve life for everyone, but not waste the windfall and store up trouble in the future? Or are we destined to repeat the mistakes of the past?

As they receive the avalanche of demands from every sector, Messers McGrath and Donohoe might remember another of Aesop’s Fables – the one about the miller, his son and their ass. The moral is if you try to please everyone, you’ll end up pleasing no one.