I spoke yesterday to a slightly annoyed Government Minister, who was expressing frustration about news coverage of yesterday’s big story about how almost half of Ireland’s Corporation Tax revenue was coming from just three companies.
“What the fuck do they want us to do?”, said Minister asked: “tell them we don’t want their money?”
He has, of course, a point: The Government can be blamed for many things, but it cannot be blamed for the bumper profits accruing to two or three multinational companies. The fact that so much revenue is coming from three companies is not, from his point of view, evidence of Government policy failure but rather success: Have they not attracted these very milky cash cows to our shores?
But of course, the problem is not revenue, but spending. The reason it is such a big story that the country is so dependent on three companies is that it is the Government’s spending choices, not its tax choices, that have made it dependent. As readers of this publication (but shockingly few other publications) know, total Irish spending has more than doubled since 2015. For every euro in Government spending we splashed out as a country then, we’re splashing out more than two euros and ten cents today. A huge proportion of that extra expenditure has been funded by these companies and their bumper profits.
Older readers may remember the outsized role that stamp duty played in the 2008 economic crash. In 2007, before the crash, the Irish Government raked in €3.2billion in stamp duty alone. By 2010, stamp duty revenues had fallen to less than €1billion. Overall, revenue from “other taxes” which was almost entirely stamp duty and other property related taxes fell by 75% in three years from 2008-2010. The result was fiscal devastation for the Irish Government, and half a decade or more of hated “austerity”.
After that crisis, one of the “lessons to be learned” was that Ireland should never again become as reliant fiscally on one source of income. Again, those old enough to remember the politics of Enda-Kenny-Era Ireland will remember that much over-used phrase “broaden the tax base”, which justified amongst other things the imposition of property taxes and the universal social charge, to ensure that Ireland’s spending was based on a more rounded and balanced number of taxes, such that a collapse in one would not threaten crisis.
And yet, here we are again. It is not a certainty that corporation tax revenues will crash (though it would be historically unprecedented if there was never again a global recession). But it is a certainty that a crash in those revenues would lead to crisis.
In other words, the Irish state has contrived to get itself into almost exactly the same structural mess it got itself into before the last great recession. That’s why so many people are exercised, even if they are perhaps not communicating it properly to the public.
The trouble for politicians is that the public are, of course, to blame, but no politician can say that. Nor can they fix the problem: The logical fix would be to significantly curtail public spending and spending increases while building up a big cash reserve to deal with a future crisis. But imagine the politics of that? Imagine what voters would make of a Government that announced that it was choosing not to spend money on solving Ireland’s housing crisis but was putting the money into investment accounts for future Governments instead. Imagine cancelling public sector pay rises, or – wait for this one now – increasing income taxes to “broaden” Ireland’s tax base.
Nobody, and I mean nobody, would wear it. So instead our politicians are kind of trapped. And if the crisis comes, they’ll have to sing the same song of incompetence that they sang the last time: “twas the international economy that did it… we’re a small open economy and very vulnerable, so we are”.
At some point we might have to, as a nation, face up to the central problem: That our electorate has never in its history rewarded fiscal prudence. This writer is no fan of the Irish Labour Party, but being part of the most fiscally responsible government in the history of the state between 2011 and 2016 led to that party’s annihilation in one of the most brutal electoral bloodbaths in Irish history. And Fine Gael learned the lesson of that election: After five years of relative prudence between ’11 and 16, they have promptly unleashed an orgy of new spending. They’ve been criticised for much in that time, but if you remember an opposition party pulling them up for spending too much, then you have either a better memory or a more vivid imagination than I do.
All told, this whole business looks frightening because it is frightening. Ireland’s fiscal wellbeing – ie your salary and your taxes and your children’s allowance – is entirely reliant in the medium term on companies like Apple and Microsoft and Eli Lilly posting record global profits year after year. History suggests that continuing is deeply unlikely.