Ireland’s economic reliance on foreign multinationals is stark, posing significant risks for our future stability, writes Cormac Lucey.
The Revenue Commissioners recently published the report, Corporation Tax: 2023 Payments and 2022 Returns. Despite its relatively innocuous title, however, the information contained in this report has critical implications for the Irish economy and Ireland’s public finances.
It has long been known that the multinational corporation (MNC) sector pays a disproportionate share of corporation tax in Ireland and this new report from Revenue confirms it.
When it comes to corporation tax, the foreign MNC sector paid 87 percent of all corporation tax in Ireland in 2022.
What is startling is the extent of MNC contribution compared to our two other major tax sources: income tax and value added tax (VAT).
According to a 2022 report by IDA Ireland, there are a total of 301,475 people working for foreign multinationals in the country.
That year, there were 2,121,300 working across the entire economy, according to the Central Statistics Office (CSO). Hence, just 14.2 percent of the workforce was employed by the MNC sector at that time.
Yet, thanks to the highly progressive nature of our income tax system and the much higher wages paid by our MNC sector, that cohort paid 54.6 percent of total income tax. The cherry on the cake is that, according to Revenue, the MNC sector also accounted for more than half of all VAT payments (53.8%).
When you examine all of Ireland’s varying tax heads and apply these percentages to the expected actual 2023 tax take (as set out in the Budget 2024 documentation), it emerges that the MNC sector contributed 55 percent of Ireland’s total tax revenues that year – even if we assume that it did not contribute at all to customs, excise duty, capital gains tax, capital acquisitions tax, stamp duty or motor tax.
If we make the more realistic assumption that the MNC contribution to those other tax heads was the same as its contribution to VAT, the MNC contribution to the state’s total tax take rises to a staggering 62 percent.
There are two slow-motion dangers facing our MNC sector.
The first is that our native incapacity drives away mobile international investment. We are already bursting at the seams in terms of the supply of housing (we can’t build enough), skilled personnel (we don’t have enough) and electricity (we’re at risk of not having enough).
The second danger is that the US takes action to seize the eggs that our MNC golden goose has been laying for us by legislating for a global minimum rate of corporation tax on the worldwide earnings of all US multinationals at its current corporate tax rate of 21 percent.
MNCs might save tax by paying 15 percent in Ireland only to face a six percent surcharge in the US. This measure would undermine any tax rationale for locating in Ireland and reduce our attractiveness as an investment destination.
If we are at risk of having maxed out our extraction of eggs from the MNC golden goose, how stands our indigenous sector of Irish-owned operations?
A recent report, published jointly by the Nevin Economic Research Institute (NERI) and trade union SIPTU, revisited the CSO analysis and concluded that the average value-added per hour of indigenous sector workers was just €28.
This report shows sectoral productivity in the Republic compared to that in Northern Ireland.
Apart from sectors dominated by MNC activity, productivity levels in the south lag those in the North, sometimes quite markedly. In the construction sector in the south, for example, productivity is less than half that north of the border.
However unpalatable a conclusion, the economic rise of the Republic seems entirely down to foreign multinationals and appears to owe little to native endeavour.
Disclaimer: The views expressed in this column published in the June/July 2024 issue of Accountancy Ireland are the author’s own. The views of contributors to Accountancy Ireland may differ from official Institute policies and do not reflect the views of Chartered Accountants Ireland, its Council, its committees, or the editor.
Cormac Lucey is an economic commentator and lecturer at Chartered Accountants Ireland.
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