Ireland’s mass tech job cuts are worrying the country’s finances

The wave of downsizing in the technology sector is a particular concern for Ireland and its finances, as it has been hit hard by tax revenues from multinationals.

Meta Platforms’ announcement that it would cut 13 per cent of its workforce – equivalent to around 350 jobs in Ireland – followed news of cuts at Stripe and Twitter. That means hundreds of jobs will be lost or at risk in a matter of days, and more are expected.

“There will be more layoffs in other companies in the coming weeks,” Deputy Prime Minister Leo Varadkar told parliament on Thursday. While the government has no details, “it’s likely to happen,” he said.

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

Corporations account for about a quarter of tax revenue and are heavily concentrated in a handful of large technology and pharmaceutical companies. According to an analysis by the Treasury Department, more than half of corporate tax revenue comes from 10 companies.

It’s a trust the department has dubbed a “blind spot” because it can be a volatile revenue stream.

Total corporate tax revenues rose 30 percent to 15.3 billion euros in 2021 and the government expects them to reach between 22 and 23 billion euros in 2023.

As a revenue stream, it’s “reaching the point where it’s scary,” Alan Barrett, director of the Irish Economic and Social Research Institute (ESRI), said this week. “The concern is that it could evaporate.”

It’s no risk escaping the government, which estimates as much as €10bn could be vulnerable to a shock. It plans to keep a €6 billion reserve for bad days, despite pressure to spend more on measures to alleviate tight living expenses.

Energy bill help after the huge sums spent during the coronavirus pandemic means government finances are under pressure.

While the country’s debt-to-GDP ratio is expected to be less than 50 percent this year, this is being distorted by multinational activity. Measured against gross national income, it will be around 92 percent according to ESRI.

“Any job loss is clearly a huge disappointment,” Public Expenditure Secretary Michael McGrath said in an interview. “But it’s a loss we think we can take. We are close to full employment.”

Still, the government is finalizing a review of its corporate policies after the tech jobs shock.

On Friday, the Industrial Development Agency acknowledged the challenges but said there was no indication big tech firms were planning to abandon Ireland.

“The technology base in Ireland has been building for over 60 years and will continue to grow in the future despite the current challenges,” said interim CEO Mary Buckley. “Ireland’s value proposition as a business location remains compelling.”

Meanwhile, Ireland also faces uncertainties due to changes in the way multinationals are taxed under an OECD agreement. It envisages that companies will be taxed in part where they operate rather than where they post profits.

The impact of this is difficult to quantify, according to the IDA.

In addition to corporate taxes, the slowdown in technology could impact income tax revenues.

Multinational companies tend to pay higher salaries, so these employees contribute more to the public purse.

According to ESRI’s Mr. Barrett, the wave of downsizing has highlighted the risk.

“When you see people on Twitter and Stripe losing their jobs, income tax is also a little bit vulnerable,” he said.

Updated November 12, 2022 at 5:00 am



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