UK Edition
Ireland is to launch a multi-billion euro sovereign wealth fund after ultra-low tax rates transformed its public finances by attracting some of the world's biggest companies.
The Irish finance minister Michael McGrath will on Tuesday share proposals with the cabinet for a sovereign wealth fund, drawing inspiration from countries such as Norway, Japan and Australia.
Mr McGrath's proposal follows a surge in corporate tax receipts that has swelled the country's coffers with cash, with the Government’s budget surplus predicted to reach €65bn (£57bn) over the next four years.
The proposal was seized upon by free market economists as evidence that lower taxes can boost growth, just days after Britain's corporation tax went up from 19pc to 25pc.
Maxwell Marlow, director of research at the Adam Smith Institute, said: “This is evidence on the doorstep for the Chancellor about why serious tax reform and cuts can bring about dividends for taxpayers and the Exchequer alike.”
Dublin plans to invest some of its extra revenue into a fund that will help pay for the country's ageing population by covering costs related to pensions, health and social care, housing and the shift to net zero.
Irish corporate tax receipts nearly tripled from €8bn in 2017 to €22bn last year. More than half of this came from just ten companies, including US tech behemoths such as Apple and the Google owner Alphabet. These receipts have overtaken VAT as Ireland's second most important stream of revenue.
Ireland has one of the most competitive headline tax rates for businesses among advanced economies, at 12.5pc, although it is expected to effectively rise to 15pc for large companies next January under international efforts to impose a global minimum rate.
Some of the surplus is also expected to go towards paying down Ireland’s €225bn debt heap.
Forecasts predict that in addition to a budget surplus of €8bn in 2022, another €10bn will follow this year, then €16.2bn in 2024, €18.1bn in 2025 and a further €20.8bn in 2026.
However, the Government has stressed that the volatility of corporate tax receipts means it cannot bank on them well into the future.
Economists also warned that the Irish economy could be vulnerable if profits at large multinationals fall or shift elsewhere.
While most economies contracted sharply in 2020, Ireland grew by 3.4pc. It then posted another 13.5pc expansion in 2021.
Mr McGrath’s so-called “scoring paper” will examine similar arrangements for sovereign wealth funds in Norway, Japan and Austria. It will also map out the requirements for the fund.
When presenting projections of the Government's budget surpluses over the coming years, Mr McGrath told Irish media: “The amount we put into the fund will be linked to the surplus we generate each year – which, certainly for the foreseeable future, will be driven by the excess corporate tax receipts.”
The sovereign wealth fund will be managed by the National Treasury Management Agency, a state body operating on behalf of the Government.