Ireland should increase its supply of affordable housing, boost renewables and diversify its tax base, the European Commission has recommended.
The European Commission has made individual recommendations for every EU member state as part of its annual so-called European Semester report, published today.
The European Commission has again raised concerns about Ireland’s reliance on income from taxing multinational companies.
There are also concerns about pressure on housing and the cost of healthcare. And warnings that Ireland is not on track to meet EU climate targets.
European Economy Commissioner, Valdis Dombrovskis, said becoming more competitive is essential at a time of global challenges.
“The European economy continues to demonstrate resilience as it navigates one crisis after another. But there remains an urgent need for Europe to act to enhance its competitiveness,” he warned.
“This is essential to secure our long-term prosperity and preserve our strategic autonomy. The price of failing to act is simply too high: a diminished Europe, shaped by global events rather than shaping them.
It is a future we should be unwilling to accept.
This project is a shared responsibility of EU institutions and Member States alike. Success demands that we all move in the same direction. And move urgently. That’s why this year’s recommendations to Member States target strengthening Europe’s competitiveness.”
What are the European Commission’s biggest concerns when it comes to Ireland?
Tax Revenue Concentration: A major risk to public finance stability is the heavy reliance on corporate income tax from a small number of foreign-owned multinational enterprises in the pharmaceutical and ICT sectors. Much of this revenue is considered “windfall”—exceeding what can be explained by domestic activity—and is highly susceptible to international trade and tax environment shifts. This risk is compounded by the fact that these same companies are also key contributors to personal income tax revenue.
Healthcare Sustainability: Long-term fiscal risks persist in the healthcare sector, which sees some of the highest spending in the EU despite Ireland’s relatively young population. Concerns include structural inefficiencies like a heavy reliance on expensive hospital care, limited access to primary care, and a shortage of doctors.
Underinvestment in Research and Development: Public R&D spending is among the lowest in the EU at just 0.2 percent of GDP. Private R&D is also highly concentrated in foreign firms, leaving domestic SMEs under-resourced.
Fossil Fuel Reliance: Ireland remains significantly dependent on fossil fuels and is not on track to meet its national target of a 51 percent emission reduction by 2030.
Electricity Grid and Data Centres: Unfulfilled investment needs for the electricity grid act as a barrier to climate targets. This is exacerbated by data centres, which already consume one-fifth of Ireland’s electricity supply and continue to expand.
Water and Waste: Ireland faces persistent structural shortcomings in water infrastructure, including wastewater treatment issues and a leakage rate that is among the highest in the EU. Progress in the “circular economy” (recycling and reusing materials) also lags behind EU averages.
Housing Crisis: The lack of affordable and social housing is a critical concern, with homelessness doubling over the last five years. This shortage affects national competitiveness by making it difficult for firms to attract skilled workers, which in turn puts upward pressure on wages.
What does the European Commission recommend doing about these problems?
Reducing Over-reliance on Multinationals: Broadening the tax base. Ireland should diversify its budget revenue sources to reduce the vulnerability of public finances to shifts in the global trade and tax environment.
Boosting domestic productivity: The government should focus on direct funding instruments for research and innovation to support domestic SMEs, moving beyond a heavy reliance on R&D tax credits
Healthcare: Ireland must accelerate the transition toward universal and accessible public primary healthcare to reduce the current system’s heavy and costly reliance on hospital care
Climate: The government should modernise and expand the electricity grid and remove regulatory barriers to “non-fossil flexibility”
Housing: To address the housing crisis in Ireland, the Commission recommends a multi-pronged approach focused on increasing supply, removing structural bottlenecks in construction, and strengthening the role of local authorities.The government is advised to further increase the supply of both social and affordable housing to protect lower-income segments priced out of the private market.