Just occasionally, bad news can be somewhat advantageous.

Michael McGrath and Paschal Donohoe might not want to admit it publicly but the ongoing warnings about the volatility of Ireland’s corporation tax receipts have actually been quite helpful to the two ministers as they craft their upcoming budget. “There’s been a lot of commentary, and rightly so, about the August returns,” McGrath said on Thursday – stopping short of explaining the reason for the steep fall in corporation tax collected last month.

Budgets are part economics, part politics, and part expectation management.

Cabinet members look at the huge projected surplus for this year – and for the coming years – and salivate at the prospects of spending the multinational bounty. Kites get flown. Pledges are made. Proposals are outlined before they are even costed.

The fact that the government is struggling in the polls and facing an election either late next year or early 2025 merely adds to the clamour to abandon fiscal prudence and embrace budgetary populism.

There is nothing new about this, of course. However, it is amplified by the fact that the surplus is poised to rise, barring another black swan event, to €20.8 billion by 2026.

So Simon Harris is looking for measures to support students, while Darragh O’Brien is making the case for relief for both landlords and tenants. Heather Humphreys, meanwhile, is looking for increases across the board in the area of social protection – from pensions to child benefit. The list of demands goes on.

The government is already planning to breach its spending rules in the upcoming budget (and in fact in all budgets up until 2026), something that the Fiscal Advisory Council says risks “repeating Ireland’s past mistakes, with employment already high and windfalls boosting the Exchequer”.

Both McGrath and Donohoe will be loath to go much further than the 6.1 per cent they are planning to increase core public expenditure by in October.

So, amid the clamour for cash, the recent warnings on corporation tax will give McGrath and Donohoe some political cover. “They are armed with the advice from the Fiscal Advisory Council on one hand and a drop in corporation tax on the other. Not unhelpful,” a senior government advisor told me.

It is worth looking at the corporation tax outlook in particular, as the tax has become increasingly crucial to the economic buoyancy of the state.  

As McGrath put it in response to a question by Thomas two weeks ago, huge sums of money came to Ireland at the push of a button. However, he quickly added: “Similarly, some of it could leave in the future as well.”

The Fiscal Advisory Council has been quite clear on the matter: Windfall corporation tax has covered up holes in the Exchequer.

“Without the exceptional levels of corporation tax receipts being collected, the Government would still be running a deficit. Official estimates from the Department of Finance put the windfalls at €11.8 billion in 2023 — close to half the €24.3 billion of total corporation tax receipts expected to be raised this year. This is equivalent to more than one in every four euros of tax receipts anticipated,” according to the watchdog’s pre-budget assessment.

The volatility around the tax was highlighted by the August Exchequer numbers, which revealed that corporation tax receipts fell €1 billion versus the same month last year.

“While a sharp drop was anticipated, and there may be some timing issues, the magnitude of the decline is somewhat larger than had been expected, highlighting the inherent volatility in this tax head,” officials commented.

Such warnings play right into the hands of McGrath and Donohoe.

However, it begs some questions. Is Ireland’s corporation tax goldrush about to come to an end? Or will the tax that has helped the country mask overruns in key government departments, navigate a pandemic, and help house Ukrainian refugees keep on flowing?

Last week, we published a four-part series on corporation tax – outlining in some detail how Ireland successfully transitioned from the notorious double Irish regime of the past to the much more acceptable (and much more lucrative) world of intellectual property warehousing through the so-called green jersey structure. While Ireland used to be a conduit for profit offshoring, this has now been replaced by Irish-shoring – a phrase coined by the US economist Brad Setser.

Crucially, however, Thomas delved methodically into the numbers, particularly the August fall-off in corporation tax.

The decline can be summarised in one word: Apple.

The tech multinational appears to have restructured some of its operations, resulting in a timing difference in when it pays tax here. So, in blunt terms, Apple paid €1 billion extra in March and €1 billion less in August.

“The total corporation tax collected in Ireland in March and August, which is almost entirely from Apple, is actually remarkably flat this year. The only difference is the balance of payments between the two months,” Thomas wrote.

And he was not the only one to hold a similar view. Setser, a former high-ranking official in the US Treasury Department who has tracked the flow of tax to Ireland from US multinationals for more than a decade, also weighed in on the subject in a column for The Currency last week, as did Stephen.

The consensus was that the huge surge in corporation tax receipts over the past decade is unlikely to continue. However, there is also little evidence that there will be a drop off on current levels either, barring a company-specific issue such as this week’s safety concerns about the new iPhone around Europe.

“Ireland’s tax windfall from the Irish-shoring of American corporate profits is poised to increase over the next few years. When Ireland joins the rest of the EU and raises its minimum corporate tax to 15 per cent, all these firms will pay a bit more in tax – as their tax bill is a function of both the tax rate and the scale of their inherited tax allowances,” Setser wrote.

“Moreover, the tax allowances generated by the Irish-shoring of corporate America’s crown jewels are fixed in amount and time (they generally last fifteen years, but sometimes less). Over time, absent a new set of tax games or a sudden change in the fortunes of big tech, their taxable Irish profit should only rise.”

This view was shared by Stephen, although he did baulk about the reliance of a country’s finances on a handful of tech and pharma multinationals and a small number of key executives maintaining the status quo.

According to Stephen, “Budget 2024 will not upend Ireland’s corporate tax regime but copperfasten Ireland as the preferred conduit of multinational money outside of the US. Given the structure of our political economy, the corporation tax dependency will, therefore, only grow.”

Ireland has been playing the multinational game for some time now, and it knows the rules of engagement. On Thursday, for example, Michael McGrath unwrapped a new “participation exemption” for multinationals. The measure to exempt foreign dividends from corporation tax will make no financial difference but was a key simplification demand of FDI investors. As Thomas put it, it shows multinationals that we remain on their side.

There is no evidence to suggest that the bounty will dry up. But with the budget approaching, it is politically useful for the budgetary ministers to voice their concerns and show their caution.

Elsewhere last week, we were delighted to team up with Rockwell, which manages €250 million on behalf of about 6,500 clients. Working with Amárach, we surveyed more than 450 SME owners to get their perspective on pensions, wealth and planning for the future. Founder Robert Whelan talked Tom through the findings of the survey and told his own business story.

Rachel Doyle’s attitude to business has been one of gut feeling and unwavering belief. In the latest episode of Family Matters, she talked to Alison Cowzer about growing the Arboretum garden centre from an idea into an Irish success story, and the dynamics of diplomatic succession in a family business. Family Matters is in partnership with Whitney Moore.

Of the 100,000 rental homes planned, no more than 40 per cent will ever come to fruition. Yet, according to Ronan Lyons in his column, the focus of the government efforts, and its money, is pivoting to blanket tax credits in the hope it will keep landlords in the market – even though there is a lack of data telling us why they are leaving.

On Monday, we broke the news that a German bank had appointed receivers over a Dublin property owned by Korean investors. Drawing on new analysis, Thomas and I explained how the initial deal was structured and why it fell apart.