Build, baby build
What I am about to state here should shock you, but it won’t. According to economist Brian Cronin at the Irish Fiscal Advisory Council (Ifac), nearly a third of Ireland’s tax and PRSI comes from foreign-owned multinationals in technology, manufacturing and financial services.
In a blog post this month, Cronin revealed those three sectors accounted for more than €13 billion in payroll taxes and VAT in 2024, more than Ireland’s government spent on housing and transport combined, and over €19 billion in corporation tax (which equates to almost 70% of total corporation tax receipts).
The figures don’t shock because Ireland has been so reliant on a small number of foreign-owned multinationals for many years. The only thing that’s changed is the scale of that reliance.
The reliance on foreign-owned companies for payroll taxes and VAT has grown from 11% of the total in 2017 to 18% in 2024. Cronin noted that this meant that “almost €1 out of every €5 collected in income tax, USC, PRSI, and VAT comes from foreign-owned firms in manufacturing, tech and financial services”.
If you add the corporation tax receipts as well, the figure rises to 28%, meaning “almost €3 in every €10 collected by the State in tax and PRSI now comes from foreign-owned multinationals operating in these three sectors”.
The good news, according to Cronin, is that the contribution to payroll taxes and VAT from those multinationals is likely to be less volatile than the corporation tax they pay. He argues that their “substantial” long-term investments in Ireland over the decades make it “unlikely” that they will “significantly scale back activities in Ireland in the short term”.
There are downside risks, however, he warns from the prospect of multinationals reducing their footprint in Ireland over time and AI displacing some high-paying jobs.
Cronin argues that one way to mitigate these risks is to continue to make Ireland an attractive location for investment and to address the country’s infrastructure shortcomings. “Given known shortages in housing, water, energy and transport infrastructure, there is a clear case for public investment to help resolve these issues,” he states. “This could not only support existing employers but also improve Ireland’s ability to attract new investment.”
Shortcomings
Sceptics might wonder how, after failing to tackle those shortages effectively through successive governments, to the point where many are worse than they’ve ever been before, the political class in Ireland will find itself in a position to fix those infrastructural shortcomings. Faith can move mountains but can it build houses?
One of the difficulties here is possibly psychological. Ireland’s huge reliance on a small number of multinationals has, in the past, been viewed positively in terms of the revenue it provides. But alongside this there has always been an undercurrent of anxiety because the foundation of Ireland’s relationship with those multinationals has been built on competitive tax rates. Yes, there are other attractions, most notably Ireland’s membership of the EU and its position as the biggest English-speaking nation in that organisation (we can’t label it as the ‘only’ one because everyone always forgets Malta), but they are viewed as ‘nice-to-haves’.
So when Ireland’s competitiveness relies on its tax rate, there is an understandable precariousness to the relationship it has with the companies who opt to locate here because of that tax rate. Ireland is effectively held hostage to its corporation tax rate because it has created a situation where so much of its revenue is dependent on revenue from a handful of foreign-owned multinationals. The anxiety is two-pronged: that Ireland needs to ensure those companies are not seduced by another country with a lower corporation tax rate and also that Ireland needs to do something to make its economy less reliant on those companies.
Previously, there was something akin to a complacent pride that Ireland’s tax regime was so successful in attracting multinationals but the underlying anxiety is starting to manifest publicly because Ireland’s economy has become even more skewed towards those multinationals. This makes it even more vulnerable if those organisations opt to scale-back their investment or move it somewhere else.
Keeping those organisations happy means decisions are inevitably weighted in their favour which, in turn, leads to infrastructural weaknesses because the country is incapable of making long-term plans when it is too busy catering to the whims of outside companies and their needs rather than those of its own citizenry.
Data centres are a case in point. There are now an estimated 107 data centres in Ireland with nine more under construction and planning approval for another 43. Estimates suggest data centres will account for 30% of all the electricity consumed in Ireland by 2030.
The government has been consistent in its advocacy for building data centres in Ireland but has gone through all manner of contortions to try and bypass those seeking to challenge that strategy by highlighting the infrastructural challenges it brings with it. Short-term complacency is a hallmark of government which, you could argue, is almost as valuable to multinationals as the low corporation tax rate.
It’s no surprise, then, that Ireland’s reliance on multinationals in technology, manufacturing and financial services no longer has the power to shock. The only thing that would shock us now is if the government followed Cronin’s advice and took concrete steps, backed by public investment, to address the shortages in housing, water, energy and transport infrastructure for the benefit of the Irish public.
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