The Government is to put €2 billion into the National Reserve Fund this year and €4 billion in 2023 to give the Exchequer with additional financial firepower to respond to challenges over the coming years.
In his Budget speech, the Minister for Finance Paschal Donohoe said there are the major challenges which we know are coming, and which we know will be very costly for future generations. These include an ageing population, the digital transition, and climate change. He also said that unforeseen challanges are becoming increasingly frequent "and increasingly impactful".
"It is therefore imperative that we prepare our public finances appropriately," he said. The planned €6 billion in the National Reserve Fund will come mainly from the additional corporate tax revenues collected, and will not be used to fund permanent expenditure.
He said the Government will record a surplus of €1 billion this year and €6.2 billion in 2023. this compares to a deficit of €7 billion in 2021.
"While this is extremely welcome news, headline deficit and tax revenue figures do not account for the fact that much of the surge in tax revenue is due to excess corporation tax. These receipts could change significantly in the future, and with little warning. Corporation tax amounted to nearly €12 billion to end-August and my officials expect these receipts to exceed €20 billion this year," he said.
The Department of Finance estimates approximately €1 in every €8 collected by the State in tax comes from the corporation tax payments of a very small number of firms. Mr Donohoe said that at the same time, our income tax system is heavily reliant on a relatively small number of employees; just 500,000 workers and 10 multinational companies account for over one third of the State's total tax revenue.
"My department estimates that ‘excess’ corporation tax receipts - that is the amount which may be more vulnerable to a shock - could amount to €8-10 billion this year. While these receipts are extremely welcome, they cannot be depended upon to fund permanent expenditure."
The Department is now using a new metric - GGB Star - to monitor the public finances while excluding any “excess” receipts. The Minister said that for this year, the current GGB Star would forecast at a deficit of €8 billion compared to the headline surplus of €1 billion.
