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Irish Times
a day ago
- Business
- Irish Times
Ireland's water infrastructure now main block on growth, committee hears
Ireland's water infrastructure is now one of the main constraints on the economy, limiting the supply of housing and other infrastructure, the Oireachtas Committee on Budgetary Oversight was told on Tuesday. 'Ireland is a very heavy user of water and that's why we're struggling to keep up,' Irish Fiscal Advisory Council's (Ifac) chief economist Niall Conroy told the committee. Members of Ifac appeared before the committee on Tuesday to discuss the economy and other issues. 'When we looked at how Ireland's infrastructure compares to other countries in Europe, we actually found that Ireland, for water, was about average, which we were surprised at,' he said. READ MORE The problem lies more with demand, he said, noting the State's pharma, data centre and tech industries were big users of water. Uisce Éireann , formerly Irish Water, has already stated that it will not be able to support much more than 35,000 new house completions a year 'in terms of connecting them up' without additional funding, he said. [ Coalition spending overrun likely to be more than €2bn this year Opens in new window ] Ifac chairman Seamus Coffey said there was capacity within the economy to ramp up the production of the water infrastructure 'but it is certainly a bottleneck that is slowing down the economy'. In his opening address to the committee, Mr Coffey said Ireland's infrastructure was about 25 per cent behind its peers. 'Regardless of what happens to the international environment, these infrastructure deficits need to be addressed,' he said. 'If the economy weathers the changing environment, it will have high levels of employment and high demand for infrastructure,' Mr Coffey said. 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 'If there is some form of downturn, then having adequate infrastructure would be key to restoring low unemployment and a prosperous society,' he said. Mr Coffey said the Government needed to ensure budgetary policy reduces the ups and downs of the economic cycle. 'This means showing restraint when the economy is strong and being more generous when the economy is struggling,' he said. Mr Coffey warned that overruns in day-to-day public spending are likely to top €2 billion this year. [ EU's new fiscal rules pose risk to public finances - Ifac Opens in new window ] 'The Government needs to improve how it forecasts spending. When formulating Budget 2025, the department didn't account for the money they were going to overspend in 2024 when planning for 2025,' he said. 'This created unrealistic budget figures from the beginning – a problem that keeps recurring. To avoid repeating this mistake, Budget 2026 and future medium-term plans must start with accurate baseline figures that includes all likely overspends in 2025,' he said. 'Otherwise, spending projections will be wrong from the outset,' he said. Ifac has previously criticised the Government for pursuing what it describes as an 'everything now' approach to spending by simultaneously presiding over tax cuts, higher day-to-day spending, a continued ramp-up in capital investment and for fuelling domestic price pressures by providing across the board cost-of-living supports. Mr Coffey also said Ireland currently had no effective framework for fiscal policy. 'The European fiscal rules don't work well for Ireland. They rely on GDP (gross domestic product) and ignore the risks linked to corporation tax,' he said. 'As a result, Ireland is unlikely to face external scrutiny at an EU level,' he said.
Irish Examiner
a day ago
- Business
- Irish Examiner
Government urged to show restraint amid €2bn overspend
Ireland's fiscal watchdog has warned the Government to exercise restraint on spending, calling on the coalition to set limits to offset what it has called a "weak fiscal framework." Speaking at an Oireachtas committee about Budget 2026, chair of the Irish Fiscal Advisory Council (Ifac) Séamus Coffey told committee members that current spending overruns this year are likely to exceed €2bn. 'Recent budgets have pumped money into an economy that is already performing well,' Mr Coffey told the committee. 'After accounting for exceptional corporation tax and a strong economy, the government is running a substantial deficit. This is equivalent to more than €2,500 per worker.' The Government is currently preparing its summer economic statement, a key budgetary document that will indicate the parameters for spending increases in the October budget. Speaking on Budget 2026 which will take place in October, the council chair and University College Cork lecturer said spending growth should be no faster than the sustainable growth rate of the economy, given that it continues to perform well in the face of rising uncertainty and looming tariff measures. 'That is not to say the government can't try to improve public services, support households that are struggling or upgrade Ireland's infrastructure,' Mr Coffey told the committee. 'But it means that choices would need to be made. If the Government wants to spend more in a certain area, or tax less in another, it needs to offset that by doing less in other areas.' "We don't want to see this boom and bust cycle that has plagued Irish fiscal policy for the last 40 or 50 years," Mr Coffey told the Oireachtas Budgetary Oversight Committee. The council also identified three key challenges for the Government, with these being an ageing population, the need to manage Ireland's climate transition, and infrastructure, which Ifac said is 'about 25% behind [Ireland's] peers'. The budgetary watchdog issued four key recommendations to the Government, the first of which was the coalition's need to reduce the ups and downs of the economic cycle. 'This means showing restraint when the economy is strong and being more generous when the economy is struggling,' Mr Coffey told committee members. Second, the Government was urged to set spending limits, net of tax changes, that it believes are sustainable to reduce the vagaries of annual pressure as Budget Day approaches. Third, Ifac urged the Government to focus on competitiveness and infrastructure, adding: 'While there is uncertainty over many issues, the shortage of infrastructure will need to be addressed regardless of what the international environment looks like.' Lastly, the watchdog has urged the Government to improve how it forecasts spending, calling out what it called a failure to account for overspending in 2024 when planning for this year. 'This created unrealistic budget figures from the beginning - a problem that keeps recurring,' said Mr Coffey. 'To avoid repeating this mistake, Budget 2026 and future medium-term plans must start with accurate baseline figures that include all likely overspends in 2025. Otherwise, spending projections will be wrong from the outset.'
Irish Times
10-06-2025
- Business
- Irish Times
The Irish Times view on Ireland's budget policy: betting on a tax boom
The latest report from the Irish Fiscal Advisory council (Ifac) neatly sums up the difficulty of forecasting what happens next in the Irish economy. Facing significant uncertainties, most notably from the policies of US president Donald Trump, the economy could take a hit, or could hold on to most of the gains of recent years. One thing is for sure, however. Ireland is relying ever more heavily on corporation tax. And the report from the budget watchdog suggests how the Government should respond. These recommendations are, by now, familiar, but that does not mean they should be dismissed. The Government has, wisely, started to put cash aside in case of a downturn. And this should certainly help if any reversal was temporary. However, Ifac points to structural issues too – longer-term trends which need to be addressed. One, a common theme of these reports, is Ireland's reliance on just a few major US companies for a significant amount of corporate tax revenue. When the part of corporate tax revenues relating to tax planning is factored out, Ifac estimates that the underlying budget position is in deficit. There are also problems on the spending side of the budget, which have received little attention to date. Ifac criticises the Government for its budgeting for this year, saying that it failed to take into account overruns for 2024 which had increased the spending base. As a result, spending for this year could be €3 billion above budget, it estimates. READ MORE Significant overruns have become common, but have been offset by tax also coming in ahead of target. Relying on this continuing is unwise. To combat this, Ifac calls for better spending control and a clear target – or anchor – for the level of spending increases which is then adhered to. As the report points out, corporation tax could grow further, helping to underpin the public finances. But the risks, too, are obvious. Either way, the lack of control on day-to-day public spending is notable and does not suggest proper management, or a focus on value for money.
Irish Times
09-06-2025
- Business
- Irish Times
Fiscal council predicts another surge in corporation tax
Ireland could be on the brink of another surge in corporation tax , according to the Irish Fiscal Advisory Council (Ifac) . Despite the current uncertainty surrounding global trade, the budgetary watchdog expects receipts from the business tax to rise by about €5 billion from 2026 onwards as additional revenue from the new minimum tax rate of 15 per cent over and above the State's headline rate of 12.5 per cent flows into the exchequer. Big multinationals with a turnover above €750 million have been liable to pay the higher rate since 2024 but are not due to make their initial payments under the new rate until the middle of next year. This is expected to boost tax receipts here by an additional €3 billion in 2026 and €2 billion in 2027. READ MORE [ Corporate tax receipts drop 30% as Trump's tariffs bite Opens in new window ] But there are several other trends likely to drive corporate tax higher in the short term, the council noted in its latest fiscal assessment report. Most of the biggest taxpayers here are not currently impacted by trade tensions and are forecast to report increased profits this year resulting in higher tax payments, it said. Some 60 per cent of the State's €28-€29 billion corporate tax base is paid by 10 large firms in the IT and pharma sectors here, which have so far been exempt from US tariffs. Several of these firms have also been availing of generous tax-cutting capital allowances which are due to run out, meaning they will be liable for more tax. The council also suggested that the current surge in pharmaceutical exports, which jumped by 154 per cent in the first quarter as firms rushed to get merchandises into the US before tariffs, is likely to result in bigger tax payments this year 'even if exports slow down for the rest of the year'. As a result, the council said the Government's forecast that corporate tax receipts would remain broadly unchanged at €28 billion in 2026 was 'not realistic'. While highlighting the potential upside risk to corporate tax, Ifac chairman Seamus Coffey said the tax was extremely volatile and could be subject to steep falls as well as increases. 'In the short term, do we see anything that might lead to a downside risk? No, we don't see it but that doesn't mean it's not there,' he said. 'That's very much firm specific ... that's down to the profitability and decisions these companies make, whereas we're looking at broad macro trends that can influence corporation tax,' he said. Mr Coffey said the State's corporate tax base was currently between €28 and €30 billion but 'go four or five years you could have a forecast range of plus or minus €15 billion.' In its latest report, the watchdog also took aim at the Government 's spending plans, claiming they lacked 'credibility'. It said the Government had originally projected spending in 2025 to be €6.9 billion higher than in 2024 but post-budget overruns meant spending in 2024 ended up being €3.2 billion higher. Despite this, the forecasts for 2025 remained unchanged. 'This is simply not credible,' it said. It also noted that current spending grew at a rate of 5.9 per cent during the first five months of this year amid higher-than-expected spends on education, health and justice when the Government forecasts are for a full-year increase of 1.4 per cent. The council also claimed that the Government was failing to provide medium-term spending forecasts and failing to commit to any meaningful fiscal rule that would anchor annual spending increases.
Irish Examiner
30-05-2025
- Business
- Irish Examiner
Climate action progress could attract investment, experts say, amid looming hefty EU fines
The Government's delayed approach to complying with climate-related targets and agreements may threaten Ireland's position as an attractive place to do business, according to collaborators of a major report. Marie Donnelly, chair of the Climate Change Advisory Council (CCAC), along with budgetary watchdog Ifac's chief economist Eddie Casey cautioned, since the publication of their report in March, that a likely hefty EU fine for incompliance with agreements could impact foreign direct investment (FDI) opportunities. 'There's good reason to say, given what we are seeing internationally happening and all this uncertainty that is threatening Ireland's competitiveness, that we're going to lean into these areas that are helping (FDI) and attracting multinationals to stay here,' said Mr Casey. The report, 'A Colossal Missed Opportunity — Ireland's climate action and the potential costs of missing targets', found the Government could be on the hook for fines between €8bn and €26bn if it fails to meet its agreed EU climate commitments outlined in legislation. 'The danger is that this is quite close to reality because the additional measures that they have said they will enact, they haven't followed through on yet,' said Mr Casey. If the Government implements the additional measures in its own Climate Action Plan by 2030, it could reduce the fine range to €3bn to €12bn. 'With every crisis, you have opportunities too,' he said. Mr Casey stressed the significance of investing in the renewable sector and meeting climate agreements to maintain relationships with multinationals, especially as trade tensions continue to simmer amid US president Donald Trump's tariff threats and his ambition to lure large firms back to the US. Eddie Casey, chief economist, Ifac. 'Thankfully, it looks like the Government is taking more urgency following the tariffs debacle to really get a grip on how they can deliver and accelerate it,' said Mr Casey. Ifac has long warned against the Government's overdependence on corporation tax for financial padding in annual budgets, however three quarters of the corporation tax haul last year was from US companies and around 40% was collected from just three companies. 'We are incredibly reliant on them and we don't want to lose that,' said Mr Casey. Multinationals have become increasingly interested in locations with a renewable energy supply and a reinforced energy grid as they come under mounting pressure to fuel their electricity-guzzling data centres in a more sustainable way. 'They've been really worried for a long time about Ireland's ability to actually deliver energy so they can, as a tech firm, have a larger data centre,' said Mr Casey. Ms Donnelly echoed Mr Casey's comments and said the EU's Green Deal and its clean competitiveness agenda 'are effectively the same thing'. 'Europe understands that we have to have energy both for our society and our economy,' she continued. 'It's clear that the energy we currently use is neither sustainable, it doesn't have supply security, it can blow the cost of living out of the water, it's largely drawn by not very politically stable parts of the world and it's very bad for our climate because it's full of emissions,' she said. These legally binding EU agreements that Ireland has entered require domestic reductions in greenhouse gas emissions, an increasing share of renewable energy, and improved energy efficiency. A key piece of the legislation is the Effort Sharing Regulation, which Ireland and other EU countries agreed to adopt in 2018. It covers emissions from domestic transport, buildings, small industry, waste, and agriculture. If Ireland emits more than allowed, the state will have to purchase the gap from overperforming countries — those that reduce their emissions more than required. Other countries, including Spain and Portugal, have been overperforming in terms of their climate mandates because they have taken money from other countries that are underperforming. However, Ireland has around five times the cost of missing targets compared to a larger economy such as Germany which is underperforming. However, Mr Casey explained that Germany can afford to miss targets. Marie Donnelly, chair of the Climate Change Advisory Council (CCAC). Ireland has shown Europe it is capable of economic miracles, including its recovery from the banking crisis in 2008 to boasting healthy public finances after years of volatility, including covid lockdowns, soaring inflation and interest rate hikes. However, Ireland has not been as skillful in performing miracles when it comes to its emissions targets. In 2022, Ireland had the second-highest emissions of greenhouse gases per capita in the EU at 11.7 tonnes of carbon dioxide, figures from the Central Statistics Office showed. Ireland's emissions were 56% higher than the EU average of 7.5 tonnes. Meanwhile, the most recent projections from environmental agency EPA showed Ireland can achieve a 25% reduction of emissions by 2030, which is considerably short of the 42% reduction target. In addition, Ireland fell below its renewable energy share target baseline share in 2021, 2022 and 2023 and could face costs from purchasing compliance for falling below its baseline share in 2021 and 2022 but as things stand, not for 2023, according to the climate report. This is because countries have one year to return above their baseline share. Ireland is expected to return above its baseline share in 2024. Ireland's slow movement towards climate progress may be driven by a lack of serious consequences to date. 'There is a view amongst some that this is never going to happen, that they wouldn't be fined,' said Ms Donnelly. She repeated the point that if Ireland does get fined, the bill will without doubt be at least an eye-watering €8bn. Mr Casey also said that 'if they're not going to do it, they're basically breaking the law. The State would have the resources to do that without having to hike taxes or cut spending on any ongoing supports,' he said. Mr Casey added that if this were to happen, it 'would be a colossal wasted opportunity because that is money that could be put towards loads of potential measures that would meet the targets'. If Ireland does not comply with the EU's mandate, the money that Ireland will be fined will transfer to other countries in Europe.
