Latest news with #GabrielMakhlouf
Irish Times
3 days ago
- 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 Daily Mirror
3 days ago
- Business
- Irish Daily Mirror
Central Bank Governor sends stark warning to Paschal Donohoe about Budget 2026
Budget 2026 will need to 'entail trade-offs' and require the Government to make 'choices and commitments' on spending and tax, the Central Bank Governor has warned. In Governor Gabriel Makhlouf's annual letter to Finance Minister Paschal Donohoe ahead of Budget 2026 in October, he warned of the dangers posed by the 'narrow' income tax rates. The Government has repeatedly narrowed the tax base by changing workers' tax rates. This has been done by changing the USC rates and bands and the cutoff for the higher income tax rate. There have also been changes to VAT rates, with the Government already signalling further changes in Budget 2026 that would see the rate for hospitality permanently drop to nine per cent. However, Mr Makhlouf warned that global uncertainty and impending tariffs mean the Corporation Tax is unreliable and the Government will need to make 'trade-offs'. He wrote: 'In my view, current economic and fiscal conditions imply that budgetary policy is now in a good position to address the following three priorities: improving resilience and broadening the tax base given risks to the sustainability of corporation tax; addressing infrastructure gaps in a sustainable manner; and planning for the fiscal impact of long-term challenges. 'Achieving progress across these three areas will entail trade-offs and require choices and commitments to be made on public expenditure and taxation, along with reforms to improve efficiency in the delivery of public capital expenditure and the crowding-in of private investment. 'The right choices made in a timely manner can boost long-term potential growth, safeguard the public finances and underpin sustainable growth in living standards for the community as a whole.' Mr Makhlouf noted that changes in the global economy 'transmit more directly to Ireland than most other countries' and that changes to US trade, tax or economic policy could 'have negative implications for the public finances, the labour market, and the economy more generally' in Ireland. He further warned that economic growth projections are being revised downwards due to the tariffs, and that the fiscal policy created by the Irish Government is 'particularly important for ensuring sustainable economic growth and inflation'. He told Mr Donohoe that 'a rapidly growing economy and exceptional Corporation Tax receipts could be threatened in the coming years'. He continued: 'Analysis by Central Bank staff also points to vulnerability arising from the relative narrowness of the income tax and VAT bases in Ireland. 'The income tax base is highly concentrated, with 8.5 per cent of the highest-income taxpayers in Ireland accounting for 56 per cent of aggregate personal income tax revenue. 'And the VAT base also appears relatively narrow by EU comparison, owing to both changes in the composition of household expenditure over time as well as the widespread application of reduced and zero rates to a variety of goods and services.' He added: 'The medium-term resilience of the public finances points to a need to broaden the tax base to increase government revenue as a share of national income so as to address known emerging funding needs and to mitigate the reliance on corporation tax receipts.' Elsewhere, the Government has been slated following confirmation that cuts to student fees will not be kept as part of Budget 2026 and fees will revert to €3,000. Higher Education Minister James Lawless confirmed that the previous €1,000 cut had been part of a cost-of-living package and 'as things stand,' it will not be repeated. Sinn Féin's Pearse Doherty branded the news a 'scandalous slap in the face for young people and their families'.
RTÉ News
3 days ago
- Business
- RTÉ News
Central Bank chief warns Finance Minister of VAT 'vulnerability'
Central Bank Governor Gabriel Makhlouf has warned the Minister for Finance Paschal Donohoe about the vulnerability of VAT as a source of revenue, as the Government plans to cut the rate of the tax for the hospitality and retails sectors. The Coalition promised to change the tax for those sectors in the Programme for Government following commitments given during last year's General Election. However, in his annual letter to the Minister for Finance ahead of Budget 2026, Mr Makhlouf said Ireland's "VAT base appears relatively narrow by EU comparison owing to both changes in the composition of household expenditure over time as well as the widespread application of reduced and zero rates to a variety of goods and services." The Governor also warned about the "narrowness" of income tax as a source of funds. He said the tax was "highly concentrated with 8.5% of the highest-income taxpayers in Ireland accounting for 56% of aggregate personal income tax revenue (income tax and USC)." Mr Makhlouf also repeated the Central Bank's concern about the Government about relying on excess corporation tax. He said if those receipts were to fall at a time of a reduction in multinational activity and a fall in investment it could result in a budget deficit of 4% in national income by 2030 in the absence of corrective action. Mr Makhlouf also pointed out taxes had increased significantly over recent years "well above long run historic averages."
Irish Independent
3 days ago
- 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.'
Bloomberg
3 days ago
- Business
- Bloomberg
Irish Government Must Widen Tax Base, Central Bank Warns
Ireland should broaden its tax base to ensure its budget protects long-term fiscal stability, the Central Bank of Ireland warned. 'The need to reduce the risks to the public finances from an excessively narrow tax base has become more immediate, given the reliance on corporate tax receipts from an excessively narrow tax base from a small number of multinational enterprises, which may be more vulnerable in light of geoeconomic fragmentation,' Governor Gabriel Makhlouf wrote in a pre-budget letter to the Irish government.
