Ireland’s financial ‘blind spot’ hit by massive tech job cuts

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(Bloomberg) – The wave of job cuts in the tech industry is a particular concern for Ireland and its finances, thanks to its huge exposure to tax revenues from multinational corporations.

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Meta Platforms Inc.’s announcement that it is cutting 13% of its workforce – which would equate to around 350 positions in Ireland – followed the announcement of huge cuts at Stripe Inc. and Twitter Inc. This amounts to hundreds of jobs lost or threatened in days, with more expected.

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“There will be further redundancies in other companies in the coming weeks,” Deputy Prime Minister Leo Varadkar told the Irish Parliament on Thursday. Although the government doesn’t have details, “it’s likely to happen,” he said.

While the tech sector is a big employer in Ireland, the country’s exposure runs much deeper.

Corporations account for about a quarter of tax revenue, and they are heavily concentrated among a handful of large tech and pharma companies. More than half of corporate tax revenue comes from just 10 companies, according to an analysis by the Department of Finance.

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It’s an addiction the ministry has described as a “blind spot”, noting it can be a volatile source of income.

Total corporate tax revenue jumped 30% to €15.3 billion in 2021 and the government expects it to reach €22-23 billion in 2023.

As a source of income, it “gets to the point where it’s scary,” Alan Barrett, director of Ireland’s Institute for Economic and Social Research, said this week. “The concern is that it might evaporate.”

This is not a lost risk for the government, which estimates that up to 10 billion euros could be vulnerable to a shock. It plans to maintain a rainy day reserve of 6 billion euros despite pressure to spend more on measures to ease pressure on the cost of living.

Help with the energy bill, following the huge sums spent during the Covid pandemic, means that public finances are under pressure.

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While the country’s debt ratio is expected to be below 50% of GDP this year, it is skewed by multinational activities. Measured against gross national income, it will be around 92%, according to ESRI.

“Clearly any job loss is a big disappointment,” Public Expenditure Minister Michael McGrath said in an interview. “But it’s a scale of loss that we think we can absorb. We’re close to full employment.

However, following the technological employment shock, the government is finalizing a review of its company policy.

He wants to “ensure that our foreign direct investment offer is sharp and relevant to the market”, said Dara Calleary, minister at the Ministry of Enterprise.

Meanwhile, Ireland also faces uncertainty from changes to the way multinational companies are taxed under an OECD agreement. It states that companies will be partly taxed on where they do business rather than where they make a profit.

The impact of this situation is difficult to quantify, according to IDA, the Irish Foreign Investment Agency.

In addition to corporate taxes, the technological slowdown could have an impact on income taxes. Multinationals generally pay higher salaries, so these employees contribute more to the public coffers.

The wave of job cuts has highlighted the risk, according to ESRI’s Barrett. “When you see people on Twitter and Stripe losing their jobs, income tax is also a bit vulnerable,” he said.


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