(Bloomberg) — The wave of job cuts across the technology industry is a particular concern for Ireland and its finances, thanks to its huge exposure to tax revenue from multinational corporations.
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The announcement from Meta Platforms Inc. that it’s cutting 13% of its workforce — which would equate to about 350 roles in Ireland — followed news of huge reductions at Stripe Inc. and Twitter Inc. That’s hundreds of jobs lost or at risk within days, with more expected.
“There will be further layoffs in other companies in the coming weeks,” Deputy Prime Minister Leo Varadkar told Ireland’s parliament Thursday. While the government hasn’t any details, “it’s likely to happen,” he said.
While the technology sector is a big employer in Ireland, the country’s exposure runs far deeper.
Companies account for about a quarter of tax revenue, and it’s heavily concentrated among a handful of big tech and pharmaceutical firms. More than half of corporate tax receipts come from just 10 businesses, according to Department of Finance analysis.
It’s a reliance that the department has described as a “blind spot,” noting that it can be a volatile income source.
Total corporate tax receipts jumped 30% to €15.3 billion in 2021 and the government expects them to reach €22-€23 billion in 2023.
As a revenue stream, it’s “getting to the point where it’s frightening,” Alan Barrett, director of Ireland’s Economic and Social Research Institute, said this week. “The worry is that it could evaporate.”
It’s not a risk that’s lost on the government, which estimates that up to €10 billion may be vulnerable to a shock. It’s planning to maintain a rainy-day reserve of €6 billion despite pressure to spend more on measures to ease a cost-of-living squeeze.
The energy-bill aid, in the wake of the vast sums spent during the Covid pandemic, means government finances are under strain.
While the country’s debt ratio is expected to be less than 50% of GDP this year, that’s skewed by multinational activities. Measured against gross national income, it will be about 92%, according to the ESRI.
“Clearly any job loss is a major disappointment,” Minister for Public Expenditure Michael McGrath said in an interview. “But it is a scale of loss that we believe we can absorb. We are close to full employment.”
Still, in the wake of the tech job shock, the government is finalizing a review of its enterprise policy.
On Friday, the IDA acknowledged the challenges, but said there’s no indication any major tech firms are planning to leave Ireland entirely.
“The technology base in Ireland has been building for over 60 years and will continue to grow in the future, despite current challenges,” interim Chief Executive Mary Buckley said. “Ireland’s value proposition as a place to do business remains a compelling one.”
Meanwhile, Ireland also faces uncertainty from changes to the way multinational corporations are taxed under an OECD agreement. It stipulates that companies will in part be taxed on where they do business instead of where they book profits.
The impact of this is hard to quantify, according to the IDA, Ireland’s inward investment agency.
In addition to corporate taxes, the tech slowdown may hit the take from income taxes. Multinationals typically pay higher salaries, so those employees contribute more to the public coffers.
The wave of job cuts has shone a light on the risk, according to the ESRI’s Barrett. “When you see people at Twitter and Stripe losing their jobs, income tax is a bit vulnerable as well,” he said.
(Updates with comment from IDA chief executive starting in 14th paragraph)
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