The country is facing five big threats next year – from both domestic and foreign issues.
1. Housing
Economically, socially and politically housing represents the biggest challenge facing the incoming government.
The outgoing coalition threw money at housing, ramped up the Land Development Agency and put a greater emphasis on schemes like Help-to-Buy.
But residential construction was disappointing in 2024. Ireland is estimated to have built a similar number of homes as it did during the previous year.
The indications are more positive for 2025 when more than 40,000 homes will be finished and possibly reach 50,000 in 2026, according to estimates.
It is still a long way short of the 60,000 or more homes needed to keep up with demand.
The consequence is adult children are living with parents, rising homelessness and workers are stuck in shared rental accommodation with no prospect of buying a home.
It has also resulted in surging property prices, which are now rising at 10% annually.
The Economic and Social Research Institute warns prices are 10% overvalued and some borrowers are vulnerable if their incomes drop.
2. Donald Trump
One of the most immediate threats to Ireland’s economic prosperity is the ultimatum by Donald Trump to introduce tariffs goods imported by the US.
Large quantities of pharmaceuticals, manufactured in Ireland, are sold in the States but tariffs could change that.
But as with everything involving Donald Trump, there is a wide chasm between what he says he will do and what finally happens.
Trump’s second threat is to radically overhaul corporation tax in the US. In Ireland, the tax is charged at 15% while it is 21% in the States.
If he follows through on his promise to reduce the US rate to 15% it would wipe out Ireland’s tax advantage.
US multinationals employ 200,000 in Ireland and provide huge amounts of investment.
At present almost 40% of Ireland’s corporation tax is paid by just three multinationals.
If one of those companies was to change tack it could have a significant impact on the public finances. The Central Bank says changes in US policies are the biggest threat to the Irish economy.
3. New Government
Talks are continuing about forming a new government. Fianna Fáil and Fine Gael made extensive promises in their election manifestos to cut the Universal Social Charge (USC), income tax and VAT.
Both committed to ramp-up spending. But increasing expenditure while also trimming taxes has created black holes in the public finances in the past when the economy has run into trouble.
In recent years when Ministers have overspent, they have done so without the normal financial consequences of running into the red due to the extraordinary increase in corporation tax paid by multinationals.
The Irish Fiscal Advisory Council said: “If budgets out to 2030 continue in this fashion and windfalls dry up, this would set debt on a much riskier course. This would be painful to reverse, particularly as pressures from an ageing population mount.”
The next government needs to maintain a tight rein on spending particularly in the Department of Health. At the same time it needs to invest heavily in housing, water and the electricity grid.
4. Climate
Like any country, Ireland is vulnerable to the effects more extreme weather in the coming years. While the Green Party won’t be part of the next government, the new administration knows it has to push ahead with radical changes.
The Irish Fiscal Advisory Council raised eyebrows when it suggested Ireland could be facing a potential bill of €20 billion if, as expected, it fails to reduce its emissions by 50% by 2030.
The previous estimate was €8 billion.
It said lower forecasts assumed “Ireland follows through on measures that it looks increasingly unlikely to implement”.
“A transfer of as much as €20 billion would be a colossal waste of taxpayers’ money – equivalent to virtually an entire year’s capital budget,” it added.
While this is just an estimate, it is fair to assume there will be a very significant cost to the taxpayer.
Neither Fine Gael nor Fianna Fáil set aside funding for this in their manifestos.
During the election academics commissioned by Friends of the Earth criticised both parties for shirking the tough decisions on reducing emissions in transport and agriculture. The academics gave them both an E grade on climate commitments.
5. Demographics and ageing
Often in the world of politics urgent problems overshadow important issues. The slow burn of Ireland’s changing demographics will become a much bigger headache in future years.
The population aged over 66 is set to double in the next 30 years but the number of workers will remain stable.
In the much shorter time horizon of the next five years the proportion of employees for every pensioner will fall from 3.5 to 3.
It means there is a need to plan for the effects of changing demographics and set money aside to fund them.
It has huge implications for health systems, long term care and the provision of pensions in a country where about a million workers will rely exclusively on the state pension when they retire.