Ireland’s financial fortunes suddenly linked to Trump’s economic agenda By Reuters

Written by Padraic Halpin

DUBLIN (Reuters) – The unique exposure of low-tax Irish business to the United States could put its public finances at greater risk under the leadership of Donald Trump – if he follows through on pre-election promises.

Trump has pledged to encourage industries to bring manufacturing back to the United States, and to lower the corporate tax rate to Irish levels. At worst, that could be in line with Ireland’s decades-old model of attracting jobs and tax dollars from US multinationals.

Most US-owned foreign countries employ around 11% of Ireland’s workforce and the funding of public services is largely dependent on the corporate tax they pay. Only three large US companies account for nearly one euro in eight of the total tax collected in Ireland.

A seven-fold increase in corporate tax receipts over the past decade has coincided with multinationals “moving” their most valuable intellectual property (IP) to countries like Ireland, where they operate most.

Analysts say Dublin’s biggest risk is that any steps Trump takes to cut corporate taxes and bring some of that back to the US include incentives for IP to come with it.

“If one of those multinationals decides they’re going to bring the IP back to the US, that could destroy the health budget in Ireland,” said Aidan Regan, professor of political economy at University College Dublin.

“The election of Donald Trump is a real threat to Irish public finances if it increases the incentive for many of these companies to repatriate their profits to the US, and not be declared for tax purposes in Ireland.”

The company’s tax revenue jumped from 4.6 billion euros in 2014 to an estimated 30 billion euros this year, even before including 14 billion euros in back taxes from Apple (NASDAQ:) it turned Ireland’s public finances into one of the healthiest in Europe. .

Three consecutive years of large budget surpluses have allowed the government to rapidly increase spending, cut taxes and create a sovereign wealth fund. The general election campaign that begins on Friday will feature many promises of big spending.

But Ireland’s Treasury says the state’s finances will still be in short supply without a business tax “windfall” that will not guarantee it will continue. Without those revenues, the country will have a deficit of close to 2% of national income next year and not the 2.9% of the current projected surplus.

“We know that the exposure of US multinationals is huge on the corporate tax side,” said Eddie Casey, an economist at Ireland’s fiscal watchdog, who estimated that three US companies account for 43% of all corporate tax receipts.

“If you look at where we stand on corporate tax risks today compared to a few months ago, it looks very risky – and it’s already very risky as a strategy.”

GREAT UNCERTAINTY

Casey and others say there is considerable uncertainty about whether Trump’s rhetoric will translate into policy given the budget’s cost. His tax cut plans are estimated to add anywhere from $3.6 trillion to $6.6 trillion to the federal deficit over ten years.

Ireland’s deputy prime minister pushed back on Wednesday’s threat, saying Trump was not the first president-elect to want to bring companies back to the US.

Ireland also enacted major US corporate tax reforms during Trump’s first presidency from 2017-2021.

In a letter to clients this week, however, Goodbody Stockbroker chief economist Dermot O’Leary wrote that, while not all of Trump’s policies will be implemented, some “present real risks to Ireland”.

“Of course it could all be perfectly fine and these companies choose to keep the IP here,” added UCD’s Regan.

“But Trump has made it clear that he wants to put the US first so I can’t see that his party doesn’t have Ireland in their view of the kind of things they want to do.”