Ireland’s giveaway budget has drawn envious glances, not least from Scotland, writes TERRY MURDEN
The Irish have just seen all their Christmases come at once. A budget that really did provide more money for almost every citizen seemed like the stuff of fantasy, but the rest of the is looking on with wide-eyed astonishment. Minister for Finance Jack Chambers, dished out an extraordinary package of giveaways so generous they make Santa look more like Scrooge.
No one has been left out. Parents, pensioners, the low paid, taxpayers, home buyers all benefit in what has been described as “a budget on steroids”.
Minister for Public Expenditure Paschal Donohoe pushed back against criticism that it was designed to buy votes in an upcoming election. The measures, including an eye-catching increase in winter fuel payments, were to alleviate problems and pursue “great opportunities”.
The government’s largesse extends to increased free access to IVF and the introduction of free hormone replacement therapy from January, which could save women between €360 and €840 a year.
Opposition parties in nations around the world are pointing to their own governments and asking: why not us? If the Irish can do this, why the austerity measures in the UK?
The SNP, seizing on the opportunity to compare independent Ireland with Scotland’s constitutional arrangements, said that the contrast “couldn’t be clearer”. An independent Ireland continues to “prosper and progress while broken, Brexit Britain and its Prime Minister tells the public that ‘things can only get worse’,” said the party’s Westminster economy spokesperson, Dave Doogan.
So how did the Irish perform this miracle before Christmas?
Much has been made of the €14.1 billion windfall that will be handed over by Apple following an EU ruling. Mr Chambers was able to add that sum to the nation’s balance sheet to produce an unprecedented budgetary surplus topping €25bn.
However, it is deeper than that one-off bonus and is largely a result of the country’s long-standing low rate of corporation tax which succeeded in attracting many of the multinational corporations to set up their European operations in the republic. Even during the country’s bailout and austerity years in the late 2000s the government maintained a 12.5% rate of corporation tax, among the lowest in the developed world.
In the middle of the last decade some of the world’s biggest companies began to reorganise their affairs in a way which meant they would pay a lot more tax in Ireland. Companies were expected to declare profits in locations where they had substantial operations and not just an office with a few employees in a low-tax country..
That was followed by legal relocation of intellectual property assets to Ireland – the most valuable profit-earning parts of these businesses. Apple’s shift of IP assets in 2015 is widely believed to have been responsible for a wild swing in the country’s GDP that year.
This move opened the floodgates to corporation tax receipts flowing into the Irish treasury.
There was further help in 2017 when a tax move by Donald Trump’s administration encouraged more American firms to shift assets out of zero-tax havens in the Caribbean and into Ireland whose 12% rate was closer to Trumps’ demand for a minimum global rate of 10.5% to create a more level playing field.
in 2021, Joe Biden and the Organisation for Economic Cooperation and Development jointly put pressure on Ireland and other low-tax regimes to raise their rates. The Irish resisted until finally compromising on a 15% cap which went live at the turn of this year.
As Politico noted, contrary to fears of an exodus among the 1,800 foreign companies in Ireland, the effect has been to further increase the tax paid.
Then came the recent surprise European Union court judgment that Apple must pay €14.1 billion in long-disputed funds which it failed to pay on global profits earned outside the US from 2004 to 2014.
Such has been the good fortune of the Irish government and its people, that Mr Chambers was able to say that Apple’s money will be diverted to infrastructure spending, possibly a wealth fund, as he already had more than enough cash for day-to-day spending.
Despite this, there have been warnings that the spending spree comes with dangers. The Irish Fiscal Advisory Council, an independent budget watchdog, has warned that the budget could fuel inflation and could lead to a boom-and-bust scenario.
Business leaders say that a challenge for Ireland is how to use its cash bounty effectively when it has too few available workers, unusually high and rising costs, and a planning system that can take years of objections and litigation to navigate. Norway’s Equinor, withdrew from the Irish market citing its slow planning culture and other barriers.
For now, the immediate response has been to encourage calls in other countries for sharp cuts in their own corporation taxes, not least in Scotland where Sir Tom Hunter last week repeated his call last year for a 15% rate. It won’t happen, because the Scottish government has no powers over corporation tax and the Westminster government would never agree to one part of the UK having a lower rate.
Opportunistic nationalists have pounced on the Irish budget as proof of what an independent Scotland could achieve. However, Ireland’s foresight in having a low tax rate to attract multinationals would be difficult to replicate now that the move to make taxes more globally equal will, over time, weaken that advantage.
Terry Murden was Editor and Business Editor at The Sunday Times Scotland, Business Editor at The Scotsman, and Business and City Editor at Scotland on Sunday. He is now Editor of Daily Business.
Just one problem. The finest legal brains say Apple won’t pay the £14billion because the European judgment is cobblers.