Officials preparing Ireland’s upcoming budget face a situation most of their peers elsewhere would love to have: an €8.6bn surplus and an economy that grew five times faster than expected last year.
But deciding what to do with the country’s tremendous fortune is proving trickier than anticipated.
“Ireland’s problem isn’t that it doesn’t have enough money — it has loads,” said Gerard Brady, chief economist at Ibec, Ireland’s biggest business lobby. “The problem is that it is struggling to find ways to turn that money into real things that people need.”
More than a decade on from a crash that required the EU and IMF to step in with €67.5bn in loans and impose a controversial austerity programme, the government remains cautious and stresses it is saving prudently for future pension, climate and infrastructure challenges.
But some economists believe failing to deploy its tremendous fortune misses an opportunity to fix infrastructure problems that risk strangling Ireland’s boom.
“There is an overwhelming need for public investment and a once-in-a-generation opportunity to finance that from your back pocket,” said economist David McWilliams.
There are many areas where the money could be well spent — from tackling a housing crisis in a country where population growth is fast outstripping new supply, to alleviating electricity grid, water supply, health service and public transport challenges. “Rarely has a country been given such an extraordinary opportunity to change society and been advised not to do it,” McWilliams said.
The country is on course for a bumper surplus for the third consecutive year in 2024, after being €8.3bn in the black last year and €8.6bn in 2022, according to official data.
Surging corporation tax receipts from Irish-based global companies, mostly in tech and pharmaceuticals, are behind the overflowing government coffers.
The government says corporation tax receipts, which brought in €23.8bn in 2023 and are forecast to raise €24.5bn this year, are volatile, temporary and unlikely to keep expanding at their recent pace.
It estimates half its corporate tax haul could be “windfall”, or temporary, in nature and has opted to put more than €100bn of the surplus in two sovereign wealth funds by 2035 to address future pension, climate and infrastructure challenges.
The government has slashed its budget surplus forecast for the years ahead — it had predicted €65bn for 2023-26 — but is still expecting a total of €38bn for 2024-2027.
Outside of the big tax haul, Ireland’s economy is performing strongly.
Ireland’s GDP figures are distorted by its oversized multinational sector, but modified domestic demand, the government’s preferred measure of growth, rose 2.6 per cent last year. That compared with a previous official estimate of 0.5 per cent for 2023.
With the economy running close to full employment and with annual inflation having surged as high as 9.2 per cent as recently as 2022, the government has vowed to spend carefully for fear of overheating — despite price pressures now falling back to 1.1 per cent.
But Dermot O’Leary, chief economist at brokerage Goodbody, said there was evidence of “spending creep”.
“The government has been talking a good game in relation to the need for prudence, the move to set up these savings funds. Yet the actual reality has been significantly less prudent in terms of spending growth,” he said.
Dublin has used some of the money for debt repayment, lowering its debt-to-GNI ratio to just under 76 per cent, and to fund Covid-19 measures and cost of living support.
But with a general election due by 2025, expectations of a giveaway budget on October 1 are mounting.
“An embarrassment of riches is difficult for ministers to manage, particularly this side of an election. So certainly politics is coming into it,” O’Leary said.
So far, the government has said the budget will include €6.9bn in spending and €1.4bn in tax measures — moves it admits will breach its self-imposed rule of increasing spending by no more than 5 per cent a year.
Emma Howard, a lecturer at the Technological University Dublin, said Ireland should use some of its surplus cash to “look beyond the macro to societal problems”.
Ireland ranks as the loneliest country in Europe, with almost a fifth of people lonely most or all of the time and nearly two-thirds of people suffer from anxiety or depression, according to EU data. One in seven children live in homes below the poverty line, defined as 60 per cent of the median disposable household income.
“There is money we could spend right now that could improve some social issues. We should be looking at that, because we can afford it,” she said.
McWilliams said Ireland should use its surpluses to create start-up funds to foster entrepreneurialism. “It’s a failure of imagination,” he said.
Others say Ireland could enhance its 5.3mn citizens’ wellbeing and the country’s economy by improving a planning system that can hold up infrastructure developments for years.
The government is seeking to legislate to reform the system, including setting deadlines for planning decisions.
Housebuilding is finally accelerating, but remains well short of projected need. A new national children’s hospital, now set to cost €2.24bn, is way behind schedule and four times over its initial budget. It is unlikely to open until next year at the earliest.
“We could . . . deliver more with the resources we have — so money isn’t everything,” said John Fitzgerald, an economist and adjunct professor at Trinity College Dublin.
Whatever Ireland does with it, the money looks likely to keep coming.
Under one part of a two-pillar OECD tax reform plan, intended to remove advantages for multinationals doing business in low-tax jurisdictions, Ireland has increased its 12.5 per cent corporate tax rate to 15 per cent for large companies.
But the other part — a requirement for corporations to pay tax where their customers are located, which would funnel away some of Ireland’s corporate tax receipts — is effectively dead.
“We are in a very, very strong position at the moment,” Seamus Coffey, chair of the Irish Fiscal Advisory Council, told a recent conference. “The hope is that we don’t make a mess of it.”