The Government’s underlying budget deficit, which excludes windfall corporate tax receipts, is on track to hit €20 billion by 2030, the Central Bank has warned.
The bank’s director of economics and statistics Robert Kelly told the Committee on Budgetary Oversight on Wednesday that while the Government’s headline fiscal position remains in surplus “the underlying position has deteriorated”.
The underlying deficit, he said, had grown from €800 million in 2019 to €7.2 billion last year on the back of a 55 per cent jump in spending.
“While corporation tax receipts bridge this gap today, this creates a dangerous dependence on potentially transitory revenue,” Kelly said.
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Excess corporation tax receipts now represent 15 per cent of Irish tax revenue.
“This is a similar share to property related taxes during the mid-2000s property boom and highly concentrated in a handful of multinational firms,” he said.
On the spending trajectory outlined in the Government’s recent Summer Economic Statement, Kelly warned that the State’s underlying deficit will increase to €20 billion in 2030.
He said the State would need to borrow close to €8 billion between 2028 and 2030 to put the committed resources into the State’s new wealth funds: the Future Ireland Fund and the Infrastructure, Climate and Nature Fund.
“This is in an environment where the cost of government borrowing has increased significantly,” he said.
“However, if expenditure growth were constrained to 5 per cent annually, aligned with maintaining existing levels of public services and delivering the National Development Plan, the Government would eliminate the need to borrow to save,” Kelly said.
Seamus Coffey, chairman of the Irish Fiscal Advisory Council, warned the committee that introducing a large budget day package next month would further increase Ireland’s reliance on corporation tax, which is expected to climb to a record €35 billion this year.
He also noted that based on its own figures, the Government is planning on spending €7 out of every €8 collected in corporation tax between 2027 and 2030.
The Government’s medium-term fiscal plan, which aims to keep annual spending within a 6 per cent ceiling, is currently the only spending framework in place, Coffey said.
But this was not an appropriate guide for budgetary policy as it allowed net spending to grow faster than the economy’s sustainable growth rate, he said.
“Ireland needs its own domestic budgetary rule. This should be carefully designed and set out in legislation,” Coffey said.
