Ireland wants to put its growing corporate tax receipts into a new sovereign wealth fund

Ireland is considering funneling some of the bumper tax income it receives from the many multinationals based in the country into a new sovereign wealth fund.

The move would be an attempt to shore up public finances in the future – when annual incomes may be less reliable than they are now.

A paper to be presented to the Irish Parliament on Wednesday by Finance Minister Michael McGrath looks at the benefits of setting up a new “long-term public savings vehicle in which windfall receipts can be realised.”

Previous reports have suggested that the new fund will be used to pay down debt as well as continue to fund pension and health care spending.

Ireland’s corporate tax receipts have rocketed over the past decade and reached record highs since the pandemic, rising 30% year-on-year in 2021 and 48% in 2022 to a record 22.6 billion euros (24.8 billion dollars) is done.

That came from tech giants including Alphabet, meta, intelLinkedIn and Amazonwith firms such as pfizer And Johnson & Johnson,

Accounts now in multinational dominated areas more than half With many firms attracted by its low 12.5% ​​corporate tax rate, it accounts for nearly a quarter of GDP and tax revenue in the country of more than 5 million people.

government of ireland surplus Despite spending on energy support packages and other measures totaling 8 billion euros last year, 1.6% of GDP – one of the few EU countries to record a surplus. The government expects this to grow further in the coming years, potential kill 6.3% of GDP by 2026, a total of 65 billion euros over four years.

Ireland has also been shredding In the past decade its debt-to-GDP ratio reached a record high in the wake of 2008, which saw its decline celtic tiger year in a severe recession and crisis employmentproperty and banking,

Unemployment is at a record low today. But continuing challenges surround the upgrade of the country’s infrastructure and a dilapidated housing shortage,

McGrath also highlights the “substantial financial risks in the medium term” around the care of Ireland’s older population. Life expectancy for people born in Ireland from 2020 is among the highest in the EU, and the Department of Finance estimates that age-related spending will increase by €7–8 billion between 2020 and 2030.

In 2021, Ireland agreed to the Organization for Economic Co-operation and Development’s (OECD) plan for a global tax rate of 15% – a move to be phased out from 2024, but it is expected to reduce Ireland’s attractiveness to large firms. Several attempts to rein in spending have been flagged as risk-taking, especially in the wake of recent interest rate hikes.

Ricardo Amaro, senior economist on the euro zone team at Oxford Economics, said the government’s forecast of a fiscal surplus of more than 6% of national income by 2026 was “highly conditional on the assumption of no major shock to corporation tax receipts.”

“The problem is that a large portion of these revenues are very unpredictable in nature, and highly concentrated in a few multinational companies,” he told CNBC.

A sovereign wealth fund that aims to set aside these revenues for long-term investment rather than day-to-day spending could therefore be a “useful tool” – but he said there are existing equal wealth In Ireland, the details will matter.

“The risk is that contributions to the pot become too dependent on the discretion of politicians, and ultimately become too small relative to the size of windfall corporation tax receipts,” Amaro said.

“In this sense, it is likely that the pre-existing expenditure rule that limits annual spending to 5% remains the primary tool in Ireland’s fiscal framework.”