Promised tax cuts in the budget may have to be jettisoned if the EU fails to secure a tariff deal with the US, Minister of State for International Development Neale Richmond has warned.
Speaking in advance of the launch of a new report on the State’s bilateral trade with Germany, Mr Richmond said the shock to global trade from US tariffs had left the Irish economy in a “tight” situation and that October’s budget would be “very different” from its predecessors.
Mr Richmond’s comments represent a growing school of thought in Government that believes it would be fiscally reckless to repeat the windfall budgets of recent years at a time of such economic uncertainty.
Senior sources acknowledge that Ministers will still be seeking spending increases for their departments during the budget process.
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However, the hands of the Department of Finance and the Department of Public Expenditure are likely to be strengthened by the threatening international situation, even if a feared decline in corporation tax revenues does not arrive in the coming months.
“The likelihood of cost-of-living measures in this year’s budget is very remote . . . equally there will have to be a real consideration in relation to promised tax cuts,” said Mr Richmond, while noting that capital spending on vital infrastructural projects would be prioritised.
“There’s no point burying our head in the sand and saying everything is going to be great based on this new take on global economics,” added Mr Richmond, referring to US president Donald Trump‘s attempt to rewire the global economy through tariffs.
“We have to be prudent with the country’s finances . . . we can’t let ourselves be completely ignorant of global events and run budgets that aren’t reflective of the risks that are very paramount at the moment,” he said.
Mr Richmond will launch a fresh report highlighting the Republic’s trading ties with Germany in the Irish Embassy in Berlin on Wednesday.
The report indicates that Germany is now this State’s third-largest trading partner in terms of exports, behind the United States and the United Kingdom, accounting for €48.8 billion of trade in goods and services in 2023.
It also indicates that the State’s trade surplus with Germany increased sixfold between 2018 and 2023 to stand at €28.5 billion, an increase that the report links to Brexit.
“Following Brexit, Irish exports to Germany flourished in the pharmaceutical and chemical sectors, potentially reflecting a deeper intra-EU integration as consequence,” it says.
The report indicated that the Republic was Germany’s 16th most important export destination, while Irish companies in Germany employed almost 60,000 staff in 2022.
“Now that we’re at a slightly precarious time in terms of global trade, where are our most reliable trading partners, the EU and who is our biggest trading partner within the EU? It’s Germany,” said Mr Richmond.
Meanwhile, the Government has denied that Taoiseach Micheál Martin and Tánaiste Simon Harris were at cross purposes when expressing views on the US-UK trade agreement.
[ Donald Trump’s tariffs pose a ‘major risk’ to Ireland’s economy, Makhlouf warnsOpens in new window ]
On Friday, the Taoiseach made comments that seemed to welcome the deal struck between US president Donald Trump and British prime minister Keir Starmer, and said he hoped a similar arrangement could be struck between the EU and US.
The Tánaiste told the Cabinet meeting, however, that the US-UK deal would help solidify and normalise tariffs as part of the “new normal”.
The Taoiseach’s spokesman, speaking at the post-Cabinet briefing in Government Buildings on Tuesday, said Mr Martin was responding to the dramatic reduction of tariffs being imposed to more reasonable levels.
Mr Harris’s spokesperson said the Tánaiste was trying to provide an analysis to Cabinet of what he understood the US-UK deal to be.
He said the Tánaiste had said that there was “a new normal, a new reality, where tariffs exists”.
Mr Martin also held a 20-minute telephone discussion with Mr Starmer yesterday on the UK-EU summit, which will be held on May 19th. That will look at ways of improving the trade relationship between both blocs.
