Contemporary Ireland is best thought of as a paranormal state. The paranormal is that which is “analogous or parallel to, but separate from or going beyond” known reality. The principal site of paranormal activity in Ireland is not some haunted castle or spooky seance. It is the Government coffers. We have a fiscal policy and a parafiscal one – a ghostly exchequer parallel to the known reality of the Irish economy.
By the end of this year, the State will have taken in roughly €186 billion in corporation taxes over the last decade. In many ways, the story of contemporary Ireland is encapsulated in the astonishing growth in the share of overall tax revenue contributed by corporation tax. In 1984, it was just 4 per cent. By 2014, it had almost tripled to 11 per cent. It has by now almost tripled again to 29 per cent.
Most of this dizzying increase is what official bodies call “excess”. “In other words,” as the Irish Fiscal Advisory Council puts it, “it cannot be explained by underlying domestic activity.” Or, in the Central Bank’s formulation, it is “disconnected from actual economic activity in Ireland”. It is paranormal and, I think, unprecedented. Has any government in the history of the world ever been so dependent on the excessive and the inexplicable? Has any state ever driven such a great distance on the fumes of airy superfluity?
To get a sense of the scale of this ectoplasmic largesse, we can ask: how much money would the State have taken in last year if the share of its revenues accounted for by corporation tax were the same as 2014? The answer would be €11.9 billion. And what did the State actually take in corporation tax in 2024? That answer is €28 billion.
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So we’re looking at €16 billion of last year’s revenue that was accounted for simply by the magical growth in the proportional contribution of corporation tax paid by a tiny number of American multinationals. To put that in context, €16 billion is the combined budget of the departments of Education and Transport this year.
Little Ireland received more tax revenue from American corporations than any other country outside the US
At one level, of course, this windfall is not mysterious. The “excess” of magic money is a byproduct of the machinations of around 10 gigantic US-based corporations. They have transferred their intangible assets – patents, trademarks, brands and software licences – from overly obvious offshore tax havens to the more respectable but still very generous environs of Ireland.
The Irishness of this intellectual property (IP) is a legal fiction. We might call it IPP: Intellectual Plastic Paddy. But IPP allows the corporations to massively inflate the profits they declare here and the State to claim 12.5 per cent (now rising to 15 per cent) of those profits.
It might be reassuring to imagine that all this is the result of a cunning plan of Irish governments. But it isn’t. The State was red in tooth and claw in its fight to stop the modest reforms to global tax regimes that resulted in the decisions of the multinationals to onshore their IP out of the tax havens and into Ireland. It went along with those reforms grudgingly and with bad grace when it had no real choice. This is the irony: the State has been enriched against its will, dragged kicking and screaming into Aladdin’s cave.
Nonetheless, in 2022-2023, the latest year for which we have figures from the US, little Ireland received more tax revenue from American corporations than any other country outside the US. We got twice as much as China, three times as much as Germany, as much as India and Canada put together.
It is this magic fountain that waters our parafiscal exchequer. The State essentially runs two budgets. One, based on actual economic activity in Ireland, is consistently in deficit. But the other, inflated by the IPP bonanza, is in flamboyantly extravagant surplus. The first is masked by the second. The paranormal occludes the normal.
So what? If we leave aside the morality – and by God do we ever leave aside the morality – it’s free money. The luck of the Irish has turned from a sick joke into a daily reality. Why not just enjoy it?
The problem, though, is that paranormal activity is bewildering. It makes it hard to decide what is and is not real. And this is the paralysing condition that besets the State. It cannot make up its collective mind whether the “excess” is a conjuring trick or hard fact. Is it just the way Ireland is and will be for the foreseeable future? Or is it a little Eden from which, any day now, we will be expelled and thenceforth have to earn our bread by the sweat of our brows?
Unearned wealth – and let’s be clear that this is what most of this “excess” corporation tax is – leads to laziness
These dual possibilities are the headlights in which the State is caught and frozen. It can neither believe its luck nor discount it. This is the underlying reason for the almost inexplicable inability of a very rich country to reach European standards of infrastructure and social services.
Because we don’t think the bonanza is real and sustainable, we can’t plan to spend it sustainably. Yet because we have this embarrassment of riches, we don’t have to think about how we raise and spend money in the normal, tangible Irish economy. Hence, successive governments adamantly refuse to broaden the tax base – why bother taking the risk of upsetting any powerful lobby when you can just watch the billions roll into the parafiscal treasury?
Why, indeed, make any real choices at all? Unearned wealth – and let’s be clear that this is what most of this “excess” corporation tax is – leads to laziness. The hard work of reform, of innovation, of articulating priorities and then delivering them, can be shirked.
The State needs to pick a side: either decide that the crock of gold will keep renewing itself and invest accordingly, or conclude that leprechaun economics has had its day. Either trust in the paranormal or make the normal fit for purpose.
