The Republic’s reliance on corporation tax revenue from big US multinational companies continues to “pose risks to the stability of public finances”, the European Commission has warned.
An annual European Union (EU) assessment of the State’s economic and fiscal position repeated warnings about the high dependence on corporate tax receipts from a handful of multinational companies in the technology and pharmaceutical sectors.
That vital flow of corporation tax could be “highly influenced” by upheaval and changes “in the global trade and tax environment”, the commission’s report said.
The EU’s powerful executive arm, which proposes laws and leads on trade, said the corporate tax receipts from US companies was well in excess of what could be explained by their “domestic economic activity” in the Republic.
Tech giants Apple, Google, Microsoft, the pharma multinational Eli Lilly that produces obesity drug Mounjaro, Pfizer and Facebook-owner, Meta are among the US multinational companies that account for a disproportionate proportion of the State’s corporate tax take.
This has consistently prompted warnings from the Irish Fiscal Advisory Council and other watchdogs and commentators about the Republic’s overexposure to shocks or changes in the tech or pharma sector, or a transatlantic tariff dispute.
“The reliance of Ireland’s government revenue on corporate taxation from foreign-owned multinational enterprises continues to pose risks to the stability of public finances,” the commission report said on Wednesday.
It recommended Ireland “broaden the tax base to reduce the risks related to the high concentration in Ireland’s tax revenue”.
Iran’s continued choking of the Strait of Hormuz, a key shipping route bringing oil and gas from the Gulf, meant European economies were facing disruption to energy supplies and spiking prices, the report said.
In a familiar warning, the commission said broad and “untargeted” emergency measures to soften the blow of soaring energy prices would “entail large fiscal costs and are socially and economically inefficient”.
The Republic’s reliance on fossil fuels remained “significant” and EU officials recommended the State do more to “leverage” the potential of renewable energy sources.
A lack of investment in the State power grid was driving up the price of electricity and hampering efforts to meet climate transition targets, the report said. “While significant funding has been allocated to expanding and modernising the grid, delivery of investments remains to be implemented.”
The commission also flagged the growing portion of energy required by data centres, which are using a fifth of Ireland’s electricity supply.
The EU overall assessment said Ireland’s economic productivity was largely driven by foreign multinational companies. The output of home grown companies lags levels in other EU states, officials wrote. State investment in research and development schemes was at one of the lowest rates in the EU.
“The lack of affordable housing affects Ireland’s competitiveness as it limits the ability of firms, in particular SMEs [small and medium enterprises] to attract skilled workers, putting pressure on wages,” the assessment said.
Separately, the report said Russia’s invasion of Ukraine still posed an “existential challenge” for the EU.
The commission calculated that net public expenditure in Ireland increased by 6.7 per cent last year, which, it noted, was “above the recommended maximum growth rate”. Government spending was projected to increase by 6.1 per cent this year, the report said.
The assessment said health spending by the State was among the highest in the EU, despite Ireland having a relatively young and healthy population. The commission said that was, in part, due to “structural inefficiencies” in the public health system, such as a heavy reliance on costly hospital care and “limited accessibility” to primary care.
Commenting on the report, Tánaiste and Minister for Finance, Simon Harris said: “While there are some technicalities and legal issues, in broad terms the Commission finds that Ireland is compliant with the fiscal rules and I welcome this.
He said he would discuss issues emerging in the report with his EU counterparts at the meeting of EU finance ministers next week.