Ireland will channel up to €90 billion ($99 billion) worth of corporation tax receipts and budget surpluses into a sovereign wealth fund to help pay for future costs such as an aging population, the country’s finance ministry said on Wednesday.
(Bloomberg) — Ireland will channel up to €90 billion ($99 billion) worth of corporation tax receipts and budget surpluses into a sovereign wealth fund to help pay for future costs such as an aging population, the country’s finance ministry said on Wednesday.
The state will decide over the coming months how much per year to stash away and the finance ministry said the fund will receive a minimum of €34 billion by 2030.
If Ireland opts to put the larger number away, earns a strong return on the money and reinvests it out to 2035, the total value of the fund could reach €142 billion, according to a report published on Wednesday.
A combination of a large budgetary surplus, Ireland’s exposure to volatile corporation-tax payments and “major fiscal costs” coming down the line make such a fund necessary, Finance Minister Michael McGrath said in the report.
“To me, it is blindingly obvious that we need to do this because we are receiving an enormous amount of corporation tax receipts and it will not last indefinitely into the future,” McGrath told reporters in Dublin.
The position paper outlining Ireland’s options was produced after the government’s repeated warnings that much of the soaring tax receipts paid by corporations may constitute a “windfall” that won’t necessarily be repeated.
Read More: Ireland Eyes €10 Billion Surplus as Tax Take Continues to Soar
Ireland has for years enjoyed healthy corporation tax receipts from the slew of large multinational firms based in Dublin to take advantage of its 12.5% headline rate.
But revenue from companies has effectively doubled from just before the pandemic.
McGrath on Wednesday attributed some of this increase to the strong profitability of companies and said the landmark deal to establish a minimum tax on corporations had also played a part, although his officials have previously said they don’t fully understand the sudden jump.
Ireland has estimated it could collect €24 billion of business taxes this year, of which €12 billion could be unsustainable windfall receipts.
Tax revenue from companies may rise to around €27 billion by 2026, the finance minister projects.
The fund, which could in some ways mirror that set up by Norway to invest the country’s surplus oil and gas revenues in the 1990s, will be capitalized by windfall business tax receipts and “some fraction of any future budgetary surplus,” according to the document.
“It is incumbent upon policy makers to think beyond the short term, to build resilience so that living standards can be maintained over the medium and longer term,” he said in the paper’s foreword.
(Updates with figure in first paragraph; detail in second paragraph and quote in eighth paragraph)
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