The government is set to spend most of the windfall in corporation tax over the next five years, Ireland’s budgetary watchdog has warned.
Between this year and 2030 the government is set to spend €5 of every €6 of corporation tax collected, the Irish Fiscal Advisory Council estimates.
Only €1 out of every €6 will be put into the state’s wealth fund, the Future Ireland Fund, that the government set up in 2024.
The findings are contained in the Irish Fiscal Advisory Council’s latest Fiscal Assessment Report, published today.
The European Commission and the International Monetary Fund have repeatedly warned that Ireland’s boon in tax receipts, mainly from tech giants, should not be relied upon.
“Corporation tax receipts could quickly be much higher or much lower than current levels. As a result, they are not a reliable source to fund permanent spending commitments,” said the Fiscal Advisory Council.
Using windfall taxes for investments in infrastructure is unwise because those projects – like the Dublin Metrolink and Cork Docklands development – will require sustained financing over “decades”, the watchdog warned.
Spending the money now also means the Future Ireland Fund pot will be much smaller in future.
Ireland is on course for the fastest spending growth in the European Union, the Council said.
“Spending (net of tax measures) has been growing at a rapid pace in recent years. The Government’s medium-term plan suggests net spending will continue to grow at a fast pace, faster than the sustainable growth rate of the economy.”
There is also concern that too much spending too quickly will burn the economy.
“The current plans point to spending growing faster than the economy, alongside a growing reliance on risky corporation tax receipts. A stronger fiscal framework, including a domestic rule, would help guide better budget decisions,” said Seamus Coffey from the Fiscal Advisory Council.
Surpluses shrinking, underlying deficits large
While the government expects to run surpluses in coming years, the Council says those surpluses are set to decline. Excluding excess corporation tax, it estimates a deficit of more than €11 billion in 2026 — above 3 percent of national income — with the underlying deficit projected to rise to more than €20 billion by 2030.
Borrowing to fund savings
The Council also raises concerns about using borrowing, not windfall cash, to pay into Ireland’s wealth funds.
Since the government plans to spend the large majority of corporation tax receipts, “contributions [to extra-budgetary funds] will be partly financed by increased borrowing. Government debt is planned to increase by €30 billion by 2030.”
Fiscal rule
The Fiscal Council is now advocating for the government to adopt a “fiscal rule”, set in law, to guide spending growth net of tax changes.
It also recommends running larger surpluses to buffer future shocks, using budgetary policy to smooth the economic cycle, and improving the production of budget forecasts.
The Fiscal Council is an independent statutory body that acts as Ireland’s budgetary watchdog.
It is responsible for providing an honest and independent assessment of how the Government is managing the public finances and the economy.