Fears early in the year that corporate tax receipts might start to be affected by the policies of US president Donald Trump were proved to be unfounded when the key November figures came in one month ago. Now the full year exchequer returns for 2025, published yesterday evening, confirm another strong year for the public finances.
Corporation tax again led the way, increasing by 17 per cent compared to 2024 – when the once off impact of the Apple tax ruling are factored out – continuing a decade-long trend which has transformed the State’s finances. Income tax was also ahead – though its growth rate slowed as the year went on.
While there are much-discussed dangers to the outlook for corporate tax, in the short term it may increase again. This year the impact of the increase in the tax rate on the profits of the biggest companies from 12.5 per cent to 15 per cent will start to benefit the State’s coffers.
This will provide more cash for the exchequer, but it also risks further increasing Ireland’s existing exposure to this one source of revenue – and to the profits and strategies of just a few very big US companies. Were these revenues to be hit hard, for whatever reason, Ireland would be exposed. The State has put aside enough resources to weather a temporary storm, but any fundamental change could quickly require tax increases or spending cuts.
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There is no perfect strategy to cope with this risk. Ireland requires significant investment – in housing, water, energy, schools, hospitals and so on. And in turn this will yield its own economic return. Channelling buoyant revenues in this direction makes economic sense, provided some are also being set aside in funds for the future. However, in recent years too much of the cash has also been used to support rapid growth in day-to-day spending.
This is where politics enters the equation. The strong returns will increase pressure on the Government to spend more and more on providing public services. Commitments have been given in the recent medium-term strategy document for the public finances to slow the growth rate of spending, but this year it will remain high and we have seen before how easily these guidelines can be broken.
The Government may feel that the Fiscal Advisory Council, a firm critic of its policies, will never be happy. And it could be right. But the council is just doing its job underlining the risks. Striking the appropriate balance is the job of Ministers.
If the endless budget overruns we have seen in recent years are allowed to continue, the risks will just climb. Ireland has seen before the high price that can be paid from a dangerously narrow tax base. It would be terrible to see that mistake repeated. The temptation to continue to let rip on spending must be resisted.
