BusinessAnalysis

Public finances: 2023 may go down as tax sweet spot but storm clouds loom

Department’s record exchequer numbers for the year just ended may be as good as it gets

Minister for Public Expenditure Paschal Donohoe and Minister for Finance Michael McGrath during a press conference on Thursday to mark the publication of end-year exchequer returns for 2023. Photograph: Gareth Chaney/Collins

Eoin Burke-Kennedy's face
Eoin Burke-Kennedy Economics Correspondent
Thu Jan 4 2024 - 19:02

Last year marked the third consecutive year of record-breaking Irish tax yields, with €88.1 billion collected and a near record “general government surplus” of €7.8 billion, equivalent to almost 3 per cent of national income, an exchequer performance that was unmatched anywhere else in Europe.

The next best was Denmark which ran a surplus of 2.6 per cent followed by Cyprus (2.3 per cent) and Portugal (0.8 per cent). All the rest ran deficits, a reflection of the damage Covid wrought on the public finances of Europe.

This year also capped off a period of record-breaking job creation for the Republic with more than 350,000 jobs created since 2019. Total employment in the Irish economy rose to an all-time high of 2.6 million in 2023.

Without raining heavily on the department’s latest year-end exchequer parade on Thursday and not wanting to make light of continuing crises in housing and health, but this may be as good as it gets in macroeconomic terms, at least for a while.

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There’s a chill wind blowing through the global economy. Growth has flatlined, multinational exports have gone into reverse and the labour market here is perhaps beginning to soften in the face of weaker demand.

Ongoing wars in Ukraine and Gaza and several crucial elections, not least the US presidential election in November, also hang like swords over the global economy.

There is a worrying build-up of cost pressures at the heart of the Irish exchequer too. Further overruns in health last year were once again papered over by corporation tax receipts coming in ahead of expectations. The latest returns said a “general government surplus”, a wider measure of the Government’s financial position, of €7.8 billion was recorded for 2023.

This was €1 billion less than the Government forecast as recently as October and reflected additional spending primarily on health in the final part of 2023.

Apart from the perennial problem of health overruns, the Irish Fiscal Advisory Council estimates cost of the green transition will add €1.6 billion-€3 billion a year to State costs from 2026 on. And that’s before we factor in the pensions time bomb lurking at the heart of the exchequer, which is expected to lump on an additional €7 billion-€8 billion a year by the end of the decade.

We may come to see the past three years as something of a sweet spot.

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