By Padraic Halpin

DUBLIN (Reuters) – The unique exposure of Ireland’s low-tax business model to the United States could place its public finances at significant risk under a Donald Trump presidency – if he follows through on pre-election promises.

Trump has pledged to incentivise industries to bring production back to the United States, and to slash the corporate tax rate to Irish levels. At worst, that might prove existential for Ireland’s decades-old model of attracting jobs and tax dollars from U.S. multinationals.

Mostly U.S.-owned foreign multinationals employ about 11% of Irish workers and the funding of public services is hugely reliant on the corporate tax they pay. Just three big U.S. companies account for about one in every eight euros of total tax collected in Ireland.

A near seven-fold surge in corporate tax receipts over the last decade has coincided with multinationals “onshoring” their highly valuable intellectual property (IP) assets to countries such as Ireland, where they have substantial operations.

Analysts say the key risk for Dublin is whether any measures Trump pursues to cut corporate taxes and bring more of that substance back to the U.S. includes incentives for the IP to come with it.

“If just one of those multinationals decide they’re going to locate the IP back in the U.S., that could effectively rupture the health budget in Ireland,” said Aidan Regan, professor of political economy at University College Dublin.

“The election of Donald Trump is an existential threat to the public finances of Ireland if it increases the incentive for many of these companies to shift their profits back to the U.S., and not have them declared for taxable purposes in Ireland.”

The jump in corporate tax revenue from 4.6 billion euros in 2014 to an estimated 30 billion euros this year, even before an extra 14 billion euros of back taxes from Apple (NASDAQ:) is included, has transformed Ireland’s public finances into the healthiest in Europe.

Three successive years of big budget surpluses have allowed the government to rapidly increase spending, cut taxes and set up a sovereign wealth fund. A general election campaign set to start on Friday will feature many more big spending pledges.

But Ireland’s finance ministry says the state coffers would still be in deficit without the corporate tax “windfall” that it cannot guarantee will continue. Without those revenues, the country would run a deficit close to 2% of national income next year and not the 2.9% surplus that is currently forecast.

“We know the exposure to U.S. multinationals is massive on the corporate tax side,” said Eddie Casey, chief economist at Ireland’s fiscal watchdog, which has estimated that three U.S. companies account for 43% of all corporate tax receipts.

“If you look at where we stand on the risks around corporation tax today versus a few months back, it looks riskier – and it’s already high risk as a strategy.”

HUGE UNCERTAINTY

Casey and others say there is huge uncertainty over whether Trump’s rhetoric turns into policy given the budgetary costs. His tax cutting plans are estimated to add anywhere from $3.6 trillion to $6.6 trillion to federal deficits over a decade.

Ireland’s deputy prime minister played down the threat on Wednesday, saying Trump wasn’t the first president-elect to seek to bring companies back to the U.S.

Ireland also rode out big U.S. corporate tax reforms during Trump’s first presidency from 2017-2021.

In a note 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 “bring real dangers for Ireland”.

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

“But Trump’s been very clear he wants to put the U.S. first so I just cannot foresee his team not having Ireland in their view for the type of stuff they want to do.”