{"id":203386,"date":"2025-11-27T17:45:16","date_gmt":"2025-11-27T17:45:16","guid":{"rendered":"https:\/\/www.europesays.com\/ie\/203386\/"},"modified":"2025-11-27T17:45:16","modified_gmt":"2025-11-27T17:45:16","slug":"harris-takes-the-purse-strings-just-as-irelands-golden-economic-decade-may-be-ending-the-irish-times","status":"publish","type":"post","link":"https:\/\/www.europesays.com\/ie\/203386\/","title":{"rendered":"Harris takes the purse strings just as Ireland\u2019s golden economic decade may be ending \u2013 The Irish Times"},"content":{"rendered":"

Simon Harris<\/a> will probably never keep the Irish Fiscal Advisory Council (Ifac)<\/a> completely happy. <\/p>\n

They are, after all, paid to be the \u201cbudget watchdog.\u201d But its latest report<\/a> has highlighted the choices and risks facing the new Minister for Finance<\/a> in stark terms. How Harris responds is going to be important for the future of the Coalition. <\/p>\n

Ifac, led by chairman Seamus Coffey<\/a>, did not hold back in its report on the 2026 Budget, presented in October. The council, of course, was a long-standing critic of the budget policy of the previous Coalition, arguing that while it had put aside some of the excess, or windfall, corporate tax revenues, too much of it was going toward funding additional spending. This creates risks if there is a fall-off in these tax payments. <\/p>\n

[\u00a0Coalition \u2018budgeting like there\u2019s no tomorrow\u2019, warns fiscal watchdogOpens in new window<\/a>\u00a0]<\/p>\n

Its latest report doubles down on this criticism and argues that the 2026 Budget increases the risks further; it calculates that only 15 per cent of the windfall corporate tax revenues \u2013 those judged to be most volatile \u2013 are being put aside, compared to 30 per cent in the previous year\u2019s package and 30 to 36 per cent in the previous three budgets. Ireland, in other words, is upping its bet on the corporate tax boom continuing. <\/p>\n

In the short-term, it might. Due to a new 15 per cent corporate tax rate coming into effect for the biggest companies in 2026, revenue is likely to rise next year by more than \u20ac2 billion on the Department of Finance estimates to close to \u20ac34 billion. There are clear long-term vulnerabilities from the policies of Donald Trump and the reliance on three or four big taxpayers, but for now the boom continues.<\/p>\n

The report also goes in hard on the lack of publication to date of a medium-term financial framework, which is effectively a plan for the public finances over the next five years. This was promised in the Programme for Government<\/a> but has yet to emerge. In a speech to the Cork Chamber of Commerce on Tuesday evening \u2013 and again going into Cabinet on Wednesday \u2013 Harris promised that a framework would be forthcoming. <\/p>\n

It looks likely that it will emerge before Christmas, providing, for the first time, a detailed outlook for spending over the Government\u2019s term and its consequences. The backdrop to this is a large rise in spending in recent years, due in part to a rising population, up from 4.74 million in 2016 to 5.46 million this year. State services and infrastructure have struggled to keep up. <\/p>\n

\"\"If Irish households are so rich, why does it feel like an illusion?<\/p>\n

On this week\u2019s Inside Business, host Ciar\u00e1n Hancock is joined in studio by senior lecturer in housing at TUD Dublin, Lorcan Sirr.The episode starts with some recent good news, that the net wealth of Irish households is nearly \u20ac1.3 trillion, or an average of \u20ac228,000 each.Sounds good but as Lorcan explains, this is an illusion. He argues that Ireland isn\u2019t really a wealthy country in spite of what the statistics tell us. Lorcan also touches on the housing crisis in its many forms and goes through some possible solutions. And he does have some solutions. He also explains why he thinks judicial reviews of planning decisions haven\u2019t caused the housing crisis. Produced by John Casey with JJ Vernon on sound.<\/p>\n

How do we try to understand the difference in the world view between Ifac and the last two governments? Here are the key points.<\/p>\n

The \u2018real\u2019 state of the national finances<\/b><\/p>\n

The Government operates in a world where the budget is in surplus \u2013 revenue is greater than spending, in other words. The budget documents<\/a> estimated a surplus of \u20ac10.2 billion this year and forecast an \u20ac8.1 billion surplus next year.<\/p>\n

But the figures are, as we know, supported by so-called windfall tax revenues. These are the revenues calculated to be based on tax planning rather than on the actual economic activities of the multinationals in Ireland. This is more a \u201cguesstimate\u201d than a precise figure, but generally Ifac \u2013 and the Department of Finance itself- calculate that a bit more than half of all corporate tax is in this windfall category. If all this was subtracted from total tax revenues, then the Irish budget would not be in surplus \u2013 so Ifac and the Department argue there is an \u201cunderlying deficit.\u201d On the Ifac calculations this deficit amounts to \u20ac7 billion this year and will double to \u20ac14 billion next year \u2013 and the Department of Finance\u2019s own calculations are similar.<\/p>\n

There are clear risks ahead which could hit corporate taxes, mainly from the agenda of Donald Trump<\/a>. But there is also a legitimate question \u2013 how many years do tax revenues have to land here before you have to stop calling them windfall? And if there is a fall-off, how much of this excess tax might disappear? It is very hard to calibrate the real level of risk. But equally it is very clear that with corporate taxes now accounting for over 30 per cent of total tax revenue this exposure is real.<\/p>\n

How to spend the windfall<\/b><\/p>\n

Before he left, former minister for finance, Paschal Donohoe made two points<\/a> in response to the criticism that the Government was spending too much of the windfall. One was that Ireland has huge cash needs for planned higher State investment and it was not reasonable to run a much larger headline budget surplus in this context. He also said the existing surplus and the amounts being put aside in two funds for the future provided significant leeway if trouble hit. This is true, particularly if the tax hit was cyclical and due to falling profits. But a big structural \u2013 or ongoing \u2013 fall in corporate tax due to investment leaving Ireland or tax structures being redrawn would still leave the public finances in trouble. <\/p>\n

[\u00a0The Irish Times view on the IFAC report: budgeting like there is no tomorrowOpens in new window<\/a>\u00a0]<\/p>\n

Ifac in its report argues that the windfall revenues should not be relied upon even to fund the revised State investment programme<\/a> given that it will have to continue for many years and should not be based on a potentially volatile revenue source. Spending the corporate windfall on investment is arguably less risky than using it to prop up day-to-day spending \u2013 because cuts here can be economically damaging. But having to slash investment is costly too and we are still paying the price of this happening after the financial crash.<\/p>\n

It is all about balance. Using the corporate windfall to help fund State investment seems sensible \u2013 up to a point \u2013 given that investment projects are by their nature once off. Scoping this all out in a medium-term plan would cast significant light on this and allow levels of risk to be debated, as well as underlining the Ifac points about the longer-term costs of climate change and an ageing population. <\/p>\n

Keeping to budgets<\/b><\/p>\n

Here, Ifac has a point where the Government has no real answer, beyond the politics of spending pressures when there is money in the kitty. Budgets have run over in each successive years and the problem areas have moved beyond health \u2013 previously a serial offender \u2013 to go across a number of departments. Typically, the amounts budgeted for are increased during the year as pressures emerge, with significant supplementary budgets pushed through at the end of each year. As Ifac points out, spending in 2024 ended up \u20ac5.1 billion ahead of budget \u2013 there was no way ministers in the previous government were going to make difficult decisions ahead of a general election. For this year, the Government has already forecast a \u20ac3.6 billion overrun and it is more likely to end up close to \u20ac4 billion. These all accumulate, as the spending base rises. Ifac is also critical about how the Government fails to budget for this properly each year. Controlling this is a vital challenge.<\/p>\n

[\u00a0Eoin Burke-Kennedy: Was Paschal Donohoe a safe pair of hands or the luckiest minister for finance in history?Opens in new window<\/a>\u00a0]<\/p>\n

The bottom line<\/b> <\/p>\n

All this raises big questions for Simon Harris. Producing a medium-term plan is one thing. Sticking to it will be another. Keeping departments on budget for 2026 \u2013 and restoring proper budgeting \u2013 will be a big job for Harris and Minister for Public Expenditure, Jack Chambers. And the 2027 budget will not be easy, with Ifac pointing out that already significant tax cuts will need to be accounted for \u2013 for example the full-year cost of the hospitality VAT cut \u2013 before anything new is counted in. Meanwhile, the Opposition will bang away at the issue of the cost-of-living crisis. The prize for Harris would be having strong finances in the latter half of the Government\u2019s term, allowing investment projects to be progressed and relatively generous budgets. But it will be hard won and with the economy slowing expectations may have to be reined in. The golden decade for the Irish public finances driven by corporate tax receipts may slowly be drawing to a close, leaving tougher trade-offs ahead.<\/p>\n","protected":false},"excerpt":{"rendered":"Simon Harris will probably never keep the Irish Fiscal Advisory Council (Ifac) completely happy. They are, after all,…\n","protected":false},"author":2,"featured_media":14054,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[174],"tags":[79,22779,179,18,19,17,38623,26736,46,101767,44,13083],"class_list":{"0":"post-203386","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-economy","8":"tag-business","9":"tag-department-of-finance","10":"tag-economy","11":"tag-eire","12":"tag-ie","13":"tag-ireland","14":"tag-irish-fiscal-advisory-council","15":"tag-jack-chambers","16":"tag-paschal-donohoe","17":"tag-seamus-coffey","18":"tag-simon-harris","19":"tag-smart-money"},"share_on_mastodon":{"url":"https:\/\/pubeurope.com\/@ie\/115622913109674378","error":""},"_links":{"self":[{"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/posts\/203386","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/comments?post=203386"}],"version-history":[{"count":0,"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/posts\/203386\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/media\/14054"}],"wp:attachment":[{"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/media?parent=203386"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/categories?post=203386"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/tags?post=203386"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}