Ireland’s public finances are in rude good health. The budget is in surplus, spending is increasing and cash is being set aside in two new funds. Little wonder, then, that all the parties are hoping – assuming, even – that this will continue and basing their manifesto plans on a rosy scenario.
Let’s hope they are correct. However, there are reasons for caution. The State has had the wind at its back in economic terms since the middle of the last decade to an extraordinary degree. This has provided significant resources for spending and investment, but also led to an uncomfortable reliance on the health and tax arrangements of a small number of very big US companies. This is a significant exposure.
The election of Donald Trump as the next US president puts a spotlight on this. It does not mean that foreign investment will disappear overnight, or tax revenue will fall. But Trump’s tariff and tax policies – and his goal of returning investment to the US – do increase the risks for corporate tax revenues here, probably from 2026 on.
Dealing with this is not straightforward. The State has resources and the economy and society have significant investment needs. More capital spending, in particular, is needed on vital housing and other economic and social infrastructure. There is a strong case to push forward with this, even if faster delivery is essential and value for money is key.
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There is also a need to put money aside, as the Government has planned to do, to support investment if the public finances come under pressure. We are still seeing the huge social and economic costs of slashing investment after the last financial crash and cannot make the same mistake again.
However, what we have heard so far does not show much evidence of facing up to this, or at least does not outline what choices the parties would make were things to start to go wrong. This is perhaps inevitable in an election. But already the extent of the promises are building up – including plans for massive extra investment,higher pensions, lower USC and income tax and so on.
Against this backdrop, there is a risk that this campaign loses contact with the likely budgetary reality and the choices that will face the next government. The current administration has managed to increase spending, cut taxes, put money aside and keep the budget in surplus because corporate taxes have been so strong. Even if corporate tax revenue holds at current levels, rather than increasing further, more difficult budgetary choices would soon appear. Were they to take a hit, the choices would be all the trickier.
From what we have seen so far, all the parties prefer to ignore this uncomfortable reality. Voters thus need to take their promises with a large pinch of salt.