COMMENT

Teeing up trouble: the potential cost of Ireland’s FDI reliance

In a Trumpian world, the Irish State can no longer rely on corporation tax receipts to satisfy ongoing spending commitments, warns Cormac Lucey

The extent of Ireland’s dependence on foreign direct investment is extraordinary—and in the current climate, frightening.

According to research carried out recently by the Irish Fiscal Advisory Council (IFAC) foreign-owned multinationals accounted for 84 percent of all corporation tax revenues in 2023.

Factor in the disproportionate share of income and value-added taxes paid by our multinationals, and they likely contribute about 55 percent of the State’s total tax take.

IFAC classes much of these corporation tax revenues as “excess”. They cannot be explained by domestic economic activity and are largely attributable to transactions beyond Ireland’s shores, making them highly sensitive to shifts in global—and especially American—tax, trade and industrial policy.

In a Trumpian world, such shifts are now far more likely. Since 1995, the average rate of tax growth among members of the European Economic Community has been 238 percent.

Ireland’s tax revenues have grown most, by 547 percent, followed by Luxembourg, another small state that has engineered its tax laws to contrive high tax receipts—at 450 percent.

Germany has posted growth in tax revenue of just 109 percent for the same period.

Should we be surprised then, that countries like Germany and the US are looking critically at national tax models, such as our own, that benefit corporations, their shareholders and executives but hollow out activity in their economies?

Howard Lutnick, US Secretary of Commerce, has targeted Apple’s operations in Ireland as an example of the type of activity he wants to reverse.

“They make the parts in China, they put the parts together in Taiwan, then they wave their magic wand and it floats over Ireland,” Lutnick told Bloomberg TV.

“Of course it floats over Ireland because that is where Apple does its parts—and it comes to America…They pay corporate tax on three percent profit in America, and Ireland announces a massive budget surplus for their five million people. Haha. It is just not true.”

Some may conclude that Ireland should henceforth endeavour to be less dependent on tax receipts from US multinationals.

This is the equivalent of suggesting Rory McIlroy should reduce his financial dependence on golf income.

In reality, McIlroy should ride his extraordinary golf talent for as long and hard as possible, and Ireland should do the same with its tax arrangements.

But neither McIlroy nor Ireland should get too used to the current flood of revenues each enjoys.

Forbes reckons McIlroy has earned about $83 million over the past 12 months. I strongly doubt he has spent all that income, however.

The Irish State doesn’t seem to appreciate that a very large share of its tax revenues can be classed as ‘windfall’ and may not last.

This money should be either saved or invested. It should not be used to sustain day-to-day spending levels that may have to be curtailed in the future.

As Brian Cronin contends in his recent IFAC paper: “The government should avoid using…[windfall tax receipts] to fund permanent commitments.”

Another IFAC report, by Niall Conroy and Kevin Timoney, highlights Ireland’s “significant deficits” in housing, health, transport and electricity infrastructure.

The Irish State has preferred to commit to ongoing spend, rather than saving windfall tax receipts or investing them in badly needed infrastructure.

The approach brings to mind the Government’s failure to accrue for public sector pension liabilities. As short-term self-interest continues to prevail over long-term concerns, we may be facing a bumpy time ahead.

*Disclaimer: The views expressed in this column, published in the June/ July 2025 issue of Accountancy Ireland, are the author’s own. The views of contributors to Accountancy Ireland may differ from official Institute policies and do not reflect the views of Chartered Accountants Ireland, its Council, its committees, or the editor.

Cormac Lucey is an economic commentator and lecturer at Chartered Accountants Ireland