Speech by Minister McGrath at Irish Tax Institute’s Annual Dinner 2023
By: Minister for Finance; Michael McGrath
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By: Minister for Finance; Michael McGrath
Last updated on
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Thank you very much Martin, and good evening ladies and gentlemen.
I would like to begin by thanking the Irish Tax Institute, and in particular, its President Colm Browne and Chief Executive Martin Lambe, for the invitation to be with you this evening and the opportunity to say a few words.
I also want to acknowledge my Oireachtas colleagues who are with us tonight - Minister Kieran O’Donnell, and Deputy Cormac Devlin.
I want to recognise the valuable advocacy work that the Institute does on behalf of its members, and for expertise and advice it offers to Government when complex taxation issues are being considered.
I would like to thank again the ITI and its members who have participated so proactively in the various consultation processes and other stakeholder engagement activities undertaken by the department in recent years.
My department is committed to maintaining an open and engaged approach to policy making and I intend to enhance this offering through the introduction of a dedicated Business Tax Stakeholder Forum in the coming months.
This Forum will supplement existing forms of consultation and stakeholder engagement and will provide a dedicated forum for practitioners to engage on business tax policy issues at a technical level in a structured and regular way.
I am delighted that we are joined this evening by all three Revenue Commissioners – Chairperson Niall Cody, Gerry Harrahill and the newest Commissioner Ruth Kennedy.
On Tuesday of this week, I had the privilege – and it was a real privilege – to be part of a special event at Dublin Castle marking the 100th anniversary of the establishment Revenue Commissioners.
The first Annual Report published in 1924 shows Exchequer receipts collected by Revenue were just under £25 million. As the Chairman noted on Tuesday, the fact that Customs and Excise receipts accounted for 75% of the total amount collected showed the challenges faced in establishing the State following the War of Independence and the Civil War.
2022 was also a landmark year for Revenue and it is fitting that as we celebrate the organisation’s centenary, we acknowledge that last year’s tax collection exceeded €100 billion for the first time.
Having a fair but efficient system of tax collection is a fundamental pillar of any successful economy. In the dark days of COVID, we turned to the Revenue to administer schemes that never existed before, so as to sustain households and businesses from the economic shock.
I’d like to thank our Commissioners and their 7,000 colleagues across Ireland for the work they do on all of our behalf.
One year ago today, the Russian invasion of Ukraine began, with devastating humanitarian consequences for the people of Ukraine. Today, I visited a school in Cork City that now has 25 Ukrainian students and when they told me where they were from – places that we have become familiar with by name kept coming up - Mariupol; Kharkiv; Odessa; Kherson; Kyiv were all mentioned – it brings home the reality of it all.
Despite all the challenges, we can be proud as a country that we have provided safety and shelter to 75,000 Ukrainians who have come to our country in the past year.
The principal economic impact of the war was the exceptional energy price shock it triggered. Russia has used energy as a weapon of war, resulting in a level of inflation not experienced in 40 years.
Over the course of last year, the rate of inflation averaged just over 8 per cent in Ireland, compared to around 0.5 per cent for the previous decade, this has had an impact on all facets of our economy.
To avoid inflationary pressures becoming entrenched, Central Banks have rapidly tightened monetary policy.
The good news is that inflation has now peaked, and is falling back. At the time of the Budget last September, we anticipated that the annual rate of inflation for this year would average around 7 per cent, with the annual rate falling to 4 per cent in the final quarter of the year.
These were based on the assumption of oil and natural gas prices at the time of the budget; thankfully, wholesale prices have fallen sharply since then and – provided there is no further energy price shock – inflation is set to fall much more rapidly than previously assumed and we now believe it will average between 4 and 5 per cent across the year. My department will publish updated projections in the forthcoming Stability Programme Update.
To help households and businesses once again, the government had to provide a substantial fiscal response. A Budget last September with €11 billion of new measures, and this week a further €1.3 billion to extend tax reductions including excise duty on fuel, Vat on gas and electricity and Vat in the tourist and hospitality sector.
These tax rates will revert to their normal rates in line with the timeline announced on Tuesday, and I will be bringing forward a short Finance Bill in the coming weeks to give legal effect to this.
I have also made significant changes to the Temporary Business Energy Support Scheme. The scheme will be extended to the end of May. The eligibility criteria is being eased, and level of support available is being increased.
Looking ahead, it is clear that the world is facing into another year of considerable uncertainty. As a small, open economy, Ireland is particularly exposed to risks in the global economy. However, it appears as though the outlook may not be as pessimistic as had been originally thought.
On the international front, incoming data suggests that the global downturn may not be as severe as previously assumed.
Most recently, the IMF revised upwards its forecasts for most advanced economies, owing to reduced price pressures, increased fiscal supports and the reopening of the Chinese economy following its zero-COVID policy.
Domestically, despite the challenges weighing on economic activity, the Irish economy has proven to be remarkably resilient.
This is particularly so within our labour market. Yesterday, the CSO published very encouraging new data showing that there is now close to 2.6 million people in employment – higher than at any point in our nation’s history, and some 220,000 higher than the pre pandemic peak. We have seen strong employment performance across the regions.
Against this backdrop, my department expects the domestic economy to effectively move sideways over the coming months, before returning to growth from the second quarter of the year.
It is important to remember that we, as an economy, are approaching these challenging times from a position of strength, and I am confident that the Irish economy will come through the current headwinds in good shape.
That resilience coupled with prudent management of the State’s finances enables us to be more flexible and to intervene when the situation requires.
We are running Budget surpluses, our debt is falling relative to national income. We now have €6 billion in a National Reserve Fund which is held on deposit to be deployed in the event of a fiscal shock. Shortly, I’ll say a few words on the international tax reforms at OECD level, but if we stand back from the detail and look at the receipts we took in from corporation tax in 2022, it is fair to say these revenues have sky-rocketed in just under a decade.
In 2014 we received less than €5 billion in corporate tax receipts, while last year the equivalent figure was over €22.5 billion. €1 in every €4 of tax collected is now coming directly from the corporate sector.
Given the concentration of corporate tax receipts, this implies that €1 in €8 of all tax comes from just 10 firms.
My department has conducted extensive analysis of the vulnerabilities associated with this extraordinary trend. Of last year’s corporate tax receipts, my department estimates that around €10.5 billion of this is windfall in nature. Coupled with this risk, my department also estimates that an ageing population means that expenditure to 2030 will have to be €7 to €8 billion higher just to stand still.
Together, these two budgetary developments represent very significant risks to the exchequer, ones which I cannot ignore. This places an ever greater emphasis on the future of the National Reserve Fund.
Work is ongoing in my department on this very issue, and I await the finalised analysis but options could include the establishment of a more future-focussed investment fund that would cater for changes in demographics in the years ahead, as well as protecting against fiscal shocks such as a sudden loss in corporate tax revenue.
We know there is no escaping the demographics changes over the coming years and we must prepare now for that eventuality.
Turning to international tax reform, it is now well over a year since Ireland joined with 136 other jurisdictions in reaching an agreement on a two-pillared solution to address the tax challenges arising from digitalisation of the global economy.
The decision of the government to join the global agreement was not taken lightly, and I know that the views of those in the room received through the public consultation process were an important input into that process.
This year will be a pivotal year for the technical finalisation and implementation of this agreement, which will bring with it a unique opportunity to reframe the international taxation architecture that has largely remained in place for almost a century.
We know that the implementation of this agreement will ultimately come at a cost to Ireland in terms of reduced tax receipts, but I remain of the view that this is a price worth paying to bring certainty and stability to the global trading environment.
As a small open economy, it is critically important for us to support this work and progress towards a global consensus on these important issues of tax policy.
As you will be aware, the EU Minimum Tax Directive has been politically agreed, and we now have a legal commitment to implement these rules by the end of this year.
Consistent application of the OECD agreement on the minimum tax across all Member States, and in accordance with EU law, will play an important role in safeguarding Ireland's competitive tax regime.
I will be bringing forward legislation to deliver these new rules in the Finance Bill this autumn, and I know that my officials will be facilitating further stakeholder input over the course of the year.
I would like to thank you all for your engagement in the public consultations to date, and to encourage you to continue to provide input over the coming months.
I know that it can be challenging to engage with consultations while dealing with the day-to-day challenges of business or tax practice, but your input in the development stage is critical to ensuring that we can deliver these new rules with the certainty and operability that is essential to business.
While Pillar Two is largely settled, there are elements of Pillar One which are still under development. Work on these elements is continuing apace at the OECD.
There are a number of critical issues that remain to be resolved, such as the Marketing and Distribution Safe Harbour, the withdrawal of unilateral measures, the administration and tax certainty process, as well as the technical detail of the Multilateral Convention. All of these issues must be resolved before the signing ceremony scheduled for July this year.
My officials are engaged in all aspects of these discussions to ensure that the outcome of this work is faithful to the October agreement and represents a fair outcome to all jurisdictions.
Pillar One will only work as a global solution and it is important that jurisdictions across the globe move together to address this global problem. The alternative to an agreement could see the introduction of digital taxes and escalating trade tensions, which would be in no-one’s interests.
I listened with interest to Colm’s speech and understand the calls for further simplification of our tax system. Remaining competitive is as important to the government as it is to you.
It is a difficult balance to obtain. On the one hand we are dealing with the complexity of the OECD proposals and how these will be implemented in Irish law and on the other hand we want to simplify the tax system.
The team in my department are working on these two priorities and they recognise the reputational aspects of these two priorities.
Work is well underway on considering a move to a territorial tax system and I am aware of the clear preference amongst industry for this change.
My priority, before making a decision, is to make sure that we fully understand both what a territorial system might look like and how a transition from our existing system could occur, to avoid any negative unintended consequences for businesses.
I would encourage you to give detailed consideration to these questions and to engage with my officials over the coming months.
Ireland’s foreign direct investment offering remains exceptionally strong and I assure you we will work to make it even better.
As a counterbalance to the exceptional strength of our FDI sector, it is vital that we have a vibrant indigenous enterprise sector; with a system that supports, encourages and rewards investment and risk-taking.
I want Ireland to be the destination of choice not just for start-ups, but the location where businesses can scale up and base themselves permanently.
We have significant number of tax measures to encourage investment in our economy and in particular our indigenous SMEs. Schemes such as the EIIS, KEEP and CGT Entrepreneurial Relief are all very important measures in this respect.
As a new Minister for Finance, I intend to taking a fresh look at all the enterprise tax measures on the table to assess whether they are working properly, and fulfilling the potential that we know our economy can deliver.
So, I am putting you all on notice, I will read all the Budget submissions that come in, but get them in early and I know you will focus on positive suggestions that will lead to more investment, and more job creation in our country.
The other area I want to flag – and I won’t go into detail this evening – is the role that taxation policy can play in our journey to reduce carbon emissions. Taxation is a vital climate action policy lever, and it is one we will continue to use. We have legislated for carbon tax increases out to 2030, and we have ringfenced the funding for retrofitting, sustainable farming and measures to tackle fuel poverty.
Taxation policy can also be used to incentive behavioural change, and to support green investment decisions, and this will be a theme of forthcoming budgets.
As signalled in Budget 2023 my department has begun initial work on the Review of Personal Tax System, taking account of the recent report of the Commission on Taxation and Welfare.
It will consider a range of measures across income tax, USC and PRSI, together with other related personal taxation issues. The Review will involve a public consultation and as always I would welcome your feedback in this area.
To conclude, I want to assure you the government is committed to ensuring that Ireland not just maintains a competitive business environment, but improves it.
Yes, there are challenges we must face, and we will. This is a time of great change, and no little turmoil, across the world. We have overcome so much in such a short space of time. And together we will do so again.
I will always make the case that a strong, enterprise-based economy is essential if we are to have the resources to deliver the quality of public services our people deserve.
The Irish economy is a success story, but we can never take it for granted, never stand still, and I look forward to working with you all on the journey ahead.