The Government should be saving more corporate tax receipts as a buffer against concentration risk, the governor of Ireland’s Central Bank has warned.
In an interview with The Irish Times, Gabriel Makhlouf also declined to clarify whether he is seeking to be reappointed as governor when his current term ends in August, saying it was matter for the Government.
Makhlouf, who is 66, said he loved the role but “I’m not going to do it for the rest of my life”.
On the exchequer’s deepening reliance on tax receipts from the multinational sector, he said the Government needed “to address the over-concentration of the tax base”.
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More of these windfall taxes need to be saved “to build resilience for the future”, he said, while highlighting the need to broaden the tax base here.
[ Gabriel Makhlouf sticks to ECB line on rates as US tariffs help keep inflation anchored ]
Makhlouf’s comments come in the wake of a warning from the Irish Fiscal Advisory Council (Ifac) that the Government plans to save just €1 out of every €7 in corporation tax this year.
In a letter to the Tánaiste and Minister for Finance Simon Harris, published separately by the Central Bank, Makhlouf warned that the Irish economy was heading into a period of more moderate growth, partly due to infrastructural deficits in several sectors.
[ Euro zone inflation falls to 1.7% in January as energy prices easeOpens in new window ]
“After several years of operating above potential, momentum in the domestic economy is easing, reflected in lower employment growth and a slower pace of activity,” he said.
The governor noted the economy continued to face major infrastructural constraints, which he said reinforced “the need to improve supply-side conditions and the domestic economy’s capacity to deliver sustainable gains in living standards”.
The wider economic climate was “particularly challenging” for a small, open economy such as Ireland’s, he said, while noting the implications of US tariffs and greater levels of protectionism globally had yet “to be fully borne out”.
“The ongoing structural economic transitions – climate, demography, technology – coming alongside the risks of greater geopolitical conflicts represent significant downside risks to the financial system and the economy,” he said.
As a result, Makhlouf said Government policy should be focused on growing supply-side capacity in the economy, strengthening the indigenous business sector, and building fiscal buffers.
In an address to EU ambassadors in Dublin yesterday, the governor said: “Global pandemics, the return of war to Europe, the rapid advance of artificial intelligence, and the dawn of a changing international order – all unthinkable a decade ago – are now a reality that we need to respond to.”
On the outlook for interest rates, he denied the European Central Bank (ECB) was in “a holding pattern” on interest rates, having kept them unchanged for five consecutive meetings.
“There’s so much uncertainty, we’re going to continue our meeting-by-meeting approach, looking at the data,” he said.
Speculation is mounting that the ECB might opt for another interest rate cut in the coming months as US tariffs dent export growth and drag inflation below the bank’s 2 per cent target.
Trade data has been volatile over the past year as firms front-loaded product into the US to avoid tariffs and then ran down stocks.
However, in the latest three months for which data is available, euro zone exports to the US are down about 6.5 per cent from the same period a year earlier.
