'Exceptional' corporate tax receipts could at risk in coming years, Central Bank warns
Speaking at the Oireachtas Budgetary Oversight Committee on Tuesday, Deputy Governor of the Central Bank Vasileios Madouros said that while Ireland is in a strong position, underlying vulnerabilities need to be managed carefully.
"The exceptional growth in corporation tax receipts since 2015 and the strong pace of economic expansion in recent years have resulted in a marked increase in government revenues," said Mr Madouros.
"As a result, even with the substantial rise in government spending and some tax cuts, the headline budget balance has run substantial surpluses in recent years.
"However, external developments mean that this benign combination of factors – namely, a rapidly growing economy and exceptional corporate tax receipts – could be at risk in the coming years."
The deputy governor added that risks to Ireland's fiscal position from lower corporate taxes and other multinational-dependent taxes have increased, given recent international developments.
This is compounded by the "persistent deficit" in Ireland's budget balance once estimated excess corporate tax is excluded.
Infrastructure deficits
Mr Madouros also highlighted deficits in infrastructure, which he said have become an increasingly significant factor constraining the supply side of the economy.
"Addressing infrastructure deficits will not only help meet important societal and economic needs today, but also enable our economy to remain competitive amid a shifting geopolitical landscape," the deputy governor said.
The Central Bank also urged the Government to prepare for future funding needs, adding that current funds will not be enough on their own to finance the increased expenditure required to meet the needs of an aging population.
"Given demographic trends, Ireland is expected to see the largest increase in age-related spending on areas such as pensions, healthcare and long-term care amongst the EU by 2050," said Mr Madouros.
"And we know already that the Future Ireland Fund – the establishment of which has been a very positive public policy intervention – will not be sufficient, on its own."
The deputy governor said the current environment presents "important trade-offs" for fiscal policy, which he said can be achieved through "careful management" of the public finances.
To do this, the Central Bank is urging the Government to commit to a strong fiscal anchor so that rising expenditure does not add excessively to demand.
In addition, it is calling for investment to be prioritised, which can be done by broadening the tax base and mitigating the reliance on corporate tax receipts.
Finally, the regulator is calling for measures to reduce delays and, therefore, the ultimate costs in the planning and building of infrastructure.
"Measures that incentivise scale and investment in new machinery, equipment and technologies in the construction sector can also help enhance productivity and enable more sustainable delivery of housing and infrastructure," said Mr Madouros.
"These structural policies can have an outsized impact on strengthening the supply side of the economy, complementing and adding to the effectiveness of additional public investment in infrastructure."
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