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Ireland launches sovereign wealth fund as low taxes pay off

Ireland launches sovereign wealth fund as low taxes pay off

Maxwell Marlow, director of research at the Adam Smith Institute, said: “This is evidence on the doorstep for the Chancellor of why serious tax reforms and cuts can pay dividends for both taxpayers and the Treasury.”

Dublin plans to invest part of its extra income into a fund that will help pay for the country’s aging population by covering costs related to pensions, health and social care, housing and the shift to net zero.

Ireland’s corporate tax revenues almost tripled from €8 billion in 2017 to €22 billion last year. More than half of this came from just 10 companies, including US tech giants such as Apple and Google-owned Alphabet. These revenues have overtaken VAT as Ireland’s second most important revenue stream.

Ireland has one of the most competitive corporate tax rates of the advanced economies at 12.5 percent, though it is expected to effectively rise to 15 percent for large companies in January as a result of international efforts to impose a global minimum rate.

Part of the surplus is also expected to be used to pay down Ireland’s €225 billion debt.

Forecasts predict that in addition to a budget surplus of €8 billion in 2022, another €10 billion will follow this year, then €16.2 billion in 2024, €18.1 billion in 2025 and another €20.8 billion in 2026.

However, the government has stressed that the volatility of corporate tax receipts means it cannot count on it well into the future.

Economists also warned that the Irish economy could be vulnerable if the profits of large multinationals decline or shift elsewhere.

While most economies contracted sharply in 2020, Ireland grew by 3.4 percent. It then posted another 13.5 pc 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.

Presenting projections of the government’s budget surpluses for years to come, Mr McGrath told Irish media: “The amount we put into the fund will be linked to the surplus we generate each year – which, certainly in the near future, will be driven by excess corporate income tax revenue.”

The sovereign wealth fund will be managed by the National Treasury Management Agency, a state body acting on behalf of the government.

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