How long will it take us to get back to where we were in 2019 before Covid is a question we have all asked ourselves several times over the past 21 months. When it comes to the performance of the finances of the board, the answer is, not for long at all.
The 2021 check numbers released this week are pretty extraordinary based on the headlines. A record year of tax deductions despite the start / stop of the national economy, little international tourism and a hotel sector ready for a nervous breakdown.
Comparisons with the tax levies for 2020 are quite meaningless. The past 12 months were always going to be better than 2020 with its 2km and 5km blockages, huge uncertainty and global supply shutdowns. You have to look at the numbers for 2019 to see what is really going on.
Despite the loss of jobs in travel, leisure, tourism, hospitality, etc., the state collected 3.7 billion euros more in income taxes in 2021 than in 2019 before. the pandemic.
VAT revenue increased by € 300 million. Excise revenue was almost equal to pre-pandemic level. Stamp duty revenue nearly matched 2019 levels and, incredibly, capital gains tax revenue is nearly € 600 million more than it was before the pandemic – reflecting gains from the sale of stocks and trading companies.
But, of course, the biggest, again, were the corporate tax receipts. The state collected € 15.3 billion in corporate taxes last year, up from € 10.8 billion in 2019, reflecting the huge profitability of large multinationals in key industries.
In fact, if there were to be a global pandemic, any economy would want to be heavily involved in pharma, technology, and food. And we have all three.
Now Finance Minister Paschal Donohoe’s problem is to contain spending demands as we see private sector wage increases and rising inflation. Pressure will come on him for public sector wage increases, higher spending and even tax cuts. So he was inevitably downplaying things instead of bragging about an economic miracle that saw us have a budget deficit of just 2pc of GDP last year.
“If you look at where we are with this rate (corporate tax), overall Ireland will lose money and no one knows that better than I do,” he told RTÉ. Donohoe explained how new tax rules, and a global economy that has seen big taxpayers make temporarily huge profits, will negatively impact corporate taxes starting in 2023.
The Minister of Finance has a new problem with all of this – people might not believe him.
There have been few meaningful estimates of how Irish corporation tax will be affected by new international tax rules covering a minimum effective rate of 15pc and the place of tax collection rules.
The estimate of the Ministry of Finance some time ago put it at a loss of 2 billion euros per year. But € 2 billion from what level? Is it 2 billion euros less than it would have been if the new rules had not been applied or is it 2 billion euros less regardless of the peak in 2022?
No one really knows. The great danger is that the estimates are easy and that there is a significant drop in the level of revenue. Last year, € 1 out of € 4.50 collected by the state came from corporate income tax.
Based on 2020 figures, 56c out of € 4.50 collected to run this country came from just 10 companies.
Suppose the minister is right and corporate tax revenues start to decline next year. How is the government preparing to deal with this fundamental shift in the composition of tax revenues? There are very few signs that anything is being done to prepare for it.
Perhaps during this pandemic we have really seen the culmination of a decades-long industrial and fiscal policy regime that has really hit wages. Maybe we can keep around 15 billion euros a year in corporate tax revenue in the future.
May be. But we can’t afford to bet on it.
Race for tourist dollars
One set of annual figures that won’t be eagerly awaited are the overseas travel figures released by the CSO. Usually these give a clear picture of the performance of the tourism sector and the number of holidays the Irish have taken abroad.
The numbers for 2020 and 2021 would inevitably be a mixed bag that probably wouldn’t tell us anything we didn’t already know. But there is real hope that 2022 will be a much better year for international travel.
Small gains such as easing restrictions on international travel have helped to increase airline inventories. Shares of IAG, owner of Aer Lingus, have risen 25% since mid-December, when they were affected by the arrival of Omicron.
As more medical studies indicate that while more transmissible, Omicron is less severe, the way is open for a significant increase in travel.
New treatments as well as booster injections are likely to play a big role in this revival. This isn’t just good news for those desperate to get somewhere on a warm beach. It will be a vital year for the Irish tourism industry.
If there isn’t a third year of Irish staycationers, the tourism sector will need a significant influx of foreign visitors this summer. One of the issues for the US market is that most of the travel marketing takes place in February and March.
American travelers will want to be as certain as possible about the virus and the restrictions before committing here on a long-haul summer vacation.
Ryanair has seen the capacity for short-haul travel return quite quickly. As long as there is positive news about Omicron’s impact once this terrible wave of cases subsides, there will be a race to win as much international business as possible.
Pandemic fuels car sales
Despite the severe impact of the pandemic on some sectors, exporting companies, professional services, technology, pharmaceuticals and others have performed very well. And what better way to show you’ve done well and spend some of the money you saved during crashes, than to buy a new car.
SIMI data for 2021 shows that while overall engine sales had not returned to pre-pandemic levels, some luxury brands did even better than in 2019. Two years ago, 4,005 new BMWs were released. been sold. Last year it was 4,454.
There weren’t as many Mercs sold last year as in 2019, but the brand’s overall market share fell from 2.8% to 3.1%. Audi’s market share also increased from 3.9% in 2019 to just over 4% last year.
But the most notable true luxury artists were Porches and Teslas. Two years ago 65 Porsches were sold in Ireland. Last year 177 copies were sold. The cheapest Porsche is the 718 model which costs € 90,000.
While the market share of electric vehicles has grown, as one would expect, the luxury Tesla has stood out. In 2019, 270 Tesla cars were sold. In 2021, there were 863, which saw the brand reach almost 1 pc of all new cars sold. Its cheapest car, the Model 3 starts at € 49,000 and goes up to € 70,000. A Model S starts at € 90,000.