More sustained IT downturn would have ‘severe implications’ for public finances, department warns
The Department of Finance has issued a warning stating that if the global IT sector experiences a longer period of economic decline, it would greatly impact the public finances.
According to the yearly tax report released by the department, it stated that the State's tax foundation has become more centralized in a handful of significant industries. Moreover, the report suggested that around €11 billion generated from corporation tax in the previous year should be regarded as "potentially temporary".
The study highlighted that the broader field of information technology in this area, comprising both technical services and manufacturing companies, contributed nearly €12 billion (14 percent) of overall tax revenue last year.
Several well-known job cuts in the industry, which occurred due to excessive growth during the pandemic, "have brought attention to the fact that the government's financial situation heavily depends on the taxes received from these companies," it stated.
According to the article, the IT job layoffs so far have mainly been a result of reducing staff numbers to match the actual needs after the excessively optimistic hiring spree during the pandemic.
Experts are scratching their heads over the unpredictable nature of Ireland's data.
But, it cautioned that if there is a more prolonged decline in this industry, it would have serious consequences for the government's financial situation.
According to the department's report, there has been a significant increase in tax revenues following the pandemic, reaching an unprecedented €83.1 billion in 2022.
According to the statement, this amount exceeded pre-pandemic levels by approximately €24 billion, which accounts for a 40 per cent increase.
"Maybe the most remarkable development in tax incomes in Ireland during recent years has been the speedy increase in earnings from corporate taxes associated with the extremely lucrative multinational industry," stated the report.
According to the statement, the amount of money collected from corporate taxes last year was €22.6 billion. This figure was more than twice the amount collected before the pandemic and has increased by a factor of five over the past ten years.
However, the department highlighted that a significant portion of this amount, which is around €11 billion or roughly 50% of the overall amount from the previous year, may not be a stable source of income and should be regarded as an unexpected bonus.
The article cautioned that there was a strong concentration of business taxes among a few big multinational companies (only 10 companies represented 57% of the total income) and within a limited number of important industries. The main contributors to economic growth were noted to be the pharmaceutical, manufacturing, and ICT sectors.
"It is crucial to note that any unforeseen event that affects the multinational industry could have a harmful effect on this source of income, directly affecting the government's financial situation," the statement suggested.
According to the department, the authorities have taken steps to reduce the danger of depending too heavily on fragile corporate tax income. They have allocated a portion of the unexpected surplus to the National Reserve Fund and have also presented ideas for a savings plan that will last for a considerable period of time.
Introducing the report, Finance Minister Michael McGrath stated that the report "brings attention to the fact that, though the main numbers are unquestionably favorable, there are still genuine weaknesses lurking beneath the exterior."
"He mentioned that this serves as a timely reminder about the significance of making the necessary policy choices now in order to safeguard the future of the government's finances."
