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Irish Examiner
08-07-2025
- Business
- Irish Examiner
'Exceptional' corporate tax receipts could at risk in coming years, Central Bank warns
Ireland's "rapidly" growing economy and "exceptional" corporate tax receipts could be at risk in the coming years, the Central Bank of Ireland has warned, with external developments leading the Irish economy into a period of heightened uncertainty. Speaking at the Oireachtas Budgetary Oversight Committee on Tuesday, Deputy Governor of the Central Bank Vasileios Madouros said that while Ireland is in a strong position, underlying vulnerabilities need to be managed carefully. "The exceptional growth in corporation tax receipts since 2015 and the strong pace of economic expansion in recent years have resulted in a marked increase in government revenues," said Mr Madouros. "As a result, even with the substantial rise in government spending and some tax cuts, the headline budget balance has run substantial surpluses in recent years. "However, external developments mean that this benign combination of factors – namely, a rapidly growing economy and exceptional corporate tax receipts – could be at risk in the coming years." The deputy governor added that risks to Ireland's fiscal position from lower corporate taxes and other multinational-dependent taxes have increased, given recent international developments. This is compounded by the "persistent deficit" in Ireland's budget balance once estimated excess corporate tax is excluded. Infrastructure deficits Mr Madouros also highlighted deficits in infrastructure, which he said have become an increasingly significant factor constraining the supply side of the economy. "Addressing infrastructure deficits will not only help meet important societal and economic needs today, but also enable our economy to remain competitive amid a shifting geopolitical landscape," the deputy governor said. The Central Bank also urged the Government to prepare for future funding needs, adding that current funds will not be enough on their own to finance the increased expenditure required to meet the needs of an aging population. "Given demographic trends, Ireland is expected to see the largest increase in age-related spending on areas such as pensions, healthcare and long-term care amongst the EU by 2050," said Mr Madouros. "And we know already that the Future Ireland Fund – the establishment of which has been a very positive public policy intervention – will not be sufficient, on its own." The deputy governor said the current environment presents "important trade-offs" for fiscal policy, which he said can be achieved through "careful management" of the public finances. To do this, the Central Bank is urging the Government to commit to a strong fiscal anchor so that rising expenditure does not add excessively to demand. In addition, it is calling for investment to be prioritised, which can be done by broadening the tax base and mitigating the reliance on corporate tax receipts. Finally, the regulator is calling for measures to reduce delays and, therefore, the ultimate costs in the planning and building of infrastructure. "Measures that incentivise scale and investment in new machinery, equipment and technologies in the construction sector can also help enhance productivity and enable more sustainable delivery of housing and infrastructure," said Mr Madouros. "These structural policies can have an outsized impact on strengthening the supply side of the economy, complementing and adding to the effectiveness of additional public investment in infrastructure."
Irish Times
30-06-2025
- Business
- Irish Times
State must increase spending by €265bn by 2050, Central Bank's Makhlouf warns
Government spending will need to increase by about €265 billion over the next 25 years to pay for an ageing population, more housing and cutting emissions, Central Bank governor Gabriel Makhlouf has said, as he called for a credible spending rule to help prevent future downturns. 'While the State's Future Ireland Fund (FIF) will go some way to paying for what is needed in the years ahead, 'the FIF will be insufficient – on its own – to fund the higher level of public expenditure that will be required to meet the needs of an older population and to fund climate and housing investment,' Mr Makhlouf wrote in his pre-budget letter to Minister for Finance Paschal Donohoe , which was published on Monday. Spending 'will need to rise by 6.5 percentage points of national income (GNI*), or €265 billion, between 2025 and 2050 to fund higher age-related spending and the additional public investment required to meet housing and net zero targets,' he added in the letter, which is considered a key part of the budget planning process. Amid what he described as 'heightened uncertainty' around the global economy, Mr Makhlouf urged the Government to broaden the tax base, amid concerns about how reliant the exchequer is on a small number of companies and individuals to pay maintain its tax revenue. READ MORE Overseas multinationals generated about a fifth of all tax and PRSI in 2023, Mr Makhlouf said, while about 8.5 per cent of tax payers accounted for 56 per cent of personal income taxes paid. Given that backdrop, the Government should install a 'credible' spending rule in the upcoming budget. [ Government must 'anchor' spending as Ireland faces potential permanent economic hit from tariffs, official says Opens in new window ] 'To avoid a repeat of past mistakes and to shift budgetary policy away from an excessive short-term approach, the Government should commit to a credible fiscal anchor for budgetary policy to ensure the overall fiscal stance is suitable, guards against procyclicality and boom-bust dynamics and safeguards long-run fiscal sustainability,' Mr Makhlouf wrote. Successive governments have previously pledged to cap the increase in so-called core spending at 5 per cent per year. Yet in the years since that pledge was introduced, successive ministers have broken that rule. IATA Director General Willie Walsh on airline profits, air fares and why the Dublin Airport passenger cap makes Ireland a laughing stock Listen | 35:56 Mr Makhlouf has been critical of such moves in the past, noting it would likely boost inflation. 'It is important that policy supports rigorous expenditure control – not least of current expenditure – and enables the enforcement of sustainable increases in overall net government expenditure over time,' the governor added. On housing, the Mr Makhlouf noted that public money on its own 'will not be sufficient to address the housing and wider infrastructure gaps that have emerged. Fiscal and broader public policy should more actively consider reforms to crowd-in private investment and to promote productivity growth.' He pointed to measures that could quicken the planning process for housing, adding that such measures which would reduce the delays and costs were needed to help ensure the long term benefits of such projects feed into long-term growth. Mr Makhlouf also pointed to the need for investment in new technologies in the construction sector to help boost large scale projects especially for housing and infrastructure.
Irish Independent
30-06-2025
- Business
- Irish Independent
'Credible' fiscal anchor needed, Central Bank governor says
In his annual letter to the Finance Minister ahead of Budget 2026, Gabriel Makhlouf also warned that the need to widen the narrow tax base has become more immediate. An analysis by Central Bank staff has found that the Government will need to spend an additional €265bn between now and 2050 to fund higher age-related spending and to meet housing and net-zero targets. In that context, Mr Makhlouf has told Paschal Donohoe that it is important the Government keeps putting money into two long-term savings funds, but that they are not seen as a panacea. 'For example, the Future Ireland Fund will be insufficient – on its own – to fund the higher level of public expenditure required to meet the needs of an older population and to fund climate and housing investment,' his letter said. 'Taking prompt and concrete action to broaden the tax base would help to ensure that additional known expenditure needs can be met sustainably even if corporation tax was to decline significantly.' The Central Bank governor also believes that public investment alone will not be enough to fix the housing shortage and to build the necessary infrastructure. 'Fiscal and broader public policy should more actively consider reforms to crowd-in private investment and to promote productivity growth,' he said. The governor writes to the Minister for Finance every year before the Budget, to provide analysis and comment. This year's letter repeats earlier calls by the regulator for the Government to put a ceiling on its spending. 'A credible fiscal anchor is needed to guard against repeating mistakes of the past and to support rigorous expenditure control and enable longer-term investment,' the letter says. The last government introduced a rule in 2021 to limit the increase in spending to 5pc a year, net of taxes. The rule was never adhered to, and this government has not set a new one. There are signs that a benign combination of factors – including exceptional corporation tax receipts and a rapidly growing economy – could be threatened in the future. The risks of a loss of corporation tax, and other taxes that depend on multinationals, have increased due to recent international developments. ADVERTISEMENT Mr Makhlouf said the Central Bank's analysis of what would happen if 'excess' corporation tax was lost, and there was a reduced investment by the multinational sector in Ireland, was that the budget deficit could rise to over 4pc of national income by 2030. Foreign-owned multinationals in the manufacturing sector and ICT generate about 20pc of all tax and PRSI, his letter points out. In addition, the income tax base is highly concentrated with 8.5pc of the highest earners paying 56pc of income tax and USC. 'The VAT base also appears relatively narrow by EU comparison owing to both changes in the composition of household expenditure and the widespread application of reduced and zero rates to a variety of goods and services.'
Irish Independent
26-06-2025
- Business
- Irish Independent
Budget 2026 ‘won't repeat' cost of living packages of past years, Paschal Donohoe says despite price rises in food and fuel
Mr Donohoe said packages of up to €2.5bn to help with the cost of living were included in past budgets at times when inflation was at five, 10 or 15pc. 'We should not, and I believe will not repeat that again,' he told RTÉ's Morning Ireland. "But we will find other ways, budget by budget, and over four to five budgets, instead, of helping with and responding back to the needs within our society'. He said he is 'absolutely well aware' of the impact of the cost of living: "I see it and I experience that, I know the difficulty it poses for very many in our country.' However, he said there are risks when it comes to funding permanent measures with tax receipts that may not always be available in the future. There are 'challenges' ahead for the Irish economy due to US tariffs, Mr Donohoe said, but we are heading towards those challenges in a 'position of strength'. He was responding to the findings of the latest economic forecast from the Economic and Social Research Institute (ESRI), which factored in a 10pc US tariff. Different scenarios for the Irish economy, where tariffs were and were not permanently applied by the US, have been taken into account by Government, Mr Donohoe said. 'Maintaining a surplus in the public finances remains important while uncertainty over the future of the pharma industry continues. "That is not yet clear and the reason that is not yet clear is President Trump's administration is conducting an assessment of the life science and pharmaceutical sector. 'What we are doing with the European Commission and through the European Commission is making the case for supply chains, making the case for medicine being made and across the world, and the role that Ireland can play in doing that in an affordable way.' Mr Donohoe acknowledged windfall corporation tax income is being used for day-to-day spending and said this highlights the continued need for a budget surplus. "The very reason we have a surplus of just under €9bn is we believe we should not be spending a share of our corporate tax receipts that might not be available to us permanently.' €15bn will be set aside in the Future Ireland Fund by the end of this year and between this money and the running of a budget surplus, Mr Donohoe said the country will be able to 'absorb' a fall in corporate tax receipts. The latest ESRI report forecast 33,000 homes to be built this year, falling short of Government targets. Mr Donohoe said there is a need to 'go all out' to meet an overall target of 300,000 homes built in the lifetime of this Government. "I believe it is doable, but I know it will be demanding. Since 2016, we've built 200,000 more homes in our country. Since 2020 or 2021, a further 100,000 of those 200,000 homes have been built "We saw 60,000 homes commenced last year, but we know it's not enough.'
Irish Examiner
10-06-2025
- Business
- Irish Examiner
State to lose tax revenues as people move to electric vehicles but missed climate targets will cost us
Tax revenues could fall by as much as the Universal Social Charge brings in each year as more people switch to electric vehicles and renewable energy sources, the Irish Fiscal Advisory Council has warned. However, the budgetary watchdog has warned that missing key climate transition targets would be much costlier and could amount to €5,000 for every person in the country. In its biannual Fiscal Assessment report, the Council warned that the Government's two-year forecast horizon is much too short, and the twin challenges of an ageing population and the climate transition cannot be adequately prepared for. In relation to climate change, the Council estimated that 'reasonably manageable' spending increases of approximately €2bn per year will be required to achieve the necessary transitions. However, they said a bigger challenge will be to replace the taxes likely to fall away as people shift to cleaner transport and energy. The Council said the current tax system would raise far less revenue in a future where electric vehicles and renewable energy become the norm. If today's tax system was left unchanged, they said the fall in annual revenues would amount to €5bn in today's money, almost as much as the USC tax raises. While the climate transition raises challenges for tax revenues, the Council warned that doing nothing has substantial costs. "If Ireland fails to reduce its emissions, as it currently looks set to by a wide margin, it may have to transfer an enormous amount of money to neighbouring countries," the report states, with the government required to purchase transfers or credits from other countries, the costs of which could be extremely high. The Council estimates that the costs of missing climate targets could reach as high as €26bn. "A transfer of as much as €26bn would be a colossal waste of taxpayers' money — equivalent to almost €5,000 for every person in Ireland," the report warns. "Instead of transferring this money to neighbouring countries, the government should take more effective action to avoid these costs, reduce energy costs and pollution, and improve people's health." In relation to Ireland's ageing population, the report said that action taken sooner rather than later will ultimately be less costly. "While other countries are experiencing ageing populations, Ireland is facing a more rapid change," the report states, warning that by 2057, one in three people will be over the age of 65, putting more demand for healthcare, long-term care and pensions. It will also mean slower growth in the economy and hence in tax revenues. The Council said the steps taken by the Government should have an impact. The Future Ireland Fund has been established as a way of saving the 'extraordinary' corporation taxes being collected. The Government has planned gradual increases in Pay Related Social Insurance (PRSI) to help fund increased spending needs. "Modelling by the Council suggests that the Future Ireland Fund could make a substantial dent in ageing costs, covering more than half of the rise in annual spending associated with ageing between 2023 and 2041 and a quarter by 2050," the report states. "On their own, these measures will still not fully offset costs associated with ageing. However, they are an important part of the solution to dealing with these costs, which will fall much more heavily on the next generation of taxpayers."
