The State’s budgetary watchdog has strongly criticised the Government’s budget, warning it puts the public finances on “a worse trajectory”, while increasing the State’s reliance on “high-risk corporation tax”.
The criticism from the Irish Fiscal Advisory Council comes as the Department of Finance projected corporate tax revenue will rise to nearly €45 billion by the end of the decade.
That projection is on the basis Ireland will benefit from the new minimum global rate for multinationals and as companies exhaust allowances for domiciling assets here.
In its critique of Budget 2027, Ifac said spending increases net of tax measures have been running “at a blistering pace in recent years”.
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It noted that a “sustainable speed limit” of 5 per cent for both was set in 2021. “But governments have since budgeted for around 6 per cent growth, before actually delivering about 10 per cent a year on average, double the speed limit,” the council said.
If overruns continue on their current trajectory, net spending will increase by 9 per cent this year, it warned.
The watchdog also warned that the Government was continuing to use “high-risk receipts” to paper over cracks in its budgeting, and to fund permanent tax and spending measures.
In his budget speech, Minister for Finance Simon Harris said the Government was running budgetary surpluses “so that we do not spend tax revenues that cannot be relied upon in the future”.
But Ifac claimed the Government planned to spend about €6 out of every €7 it collects in corporation tax – most of it on current spending.
When excess corporation tax is stripped out, it said, the Government plans to run larger deficits, rising from €12 billion in 2026 to €20 billion in 2030.
It warned that the Government will effectively have to borrow to put money into its long-term savings funds for ageing costs from next year.
In its annual economic and fiscal outlook, published alongside the budget, the department said it expected receipts from the business tax to generate €34 billion this year before rising to €39 billion in 2027.
It projected receipts would grow to €44.7 billion by 2030 as Ireland benefits from the new minimum global rate for big multinationals and as tax allowances here run out.
The new projections came with a spate of warnings about the fragility of the public finances.
“The budgetary arithmetic is constructed on the crucial assumption that corporate profitability continues to expand; any decline in profitability could put a (potentially large) dent in corporate tax revenues,” the department said.
“Overall, the geopolitical situation remains fragile, and the probability of a long-lasting conflict in the Middle East – and, hence, a more prolonged energy outage – remains non-negligible,” it said.
In its annual economic and fiscal outlook, published alongside the budget, the Department of Finance upgraded its growth forecast for the economy.
It said it expected modified domestic demand, a measure of domestic economic activity, to expand by 3.7 per cent this year, which represents an upgrade of 1.5 per cent on its spring projections.
It said the upgrade comes on the back of “solid” consumer spending and AI-related investment. Growth for next year is expected to be 3 per cent.
“These projections are calibrated on the assumption that the energy price shock begins to recede over the course of next year,” it said.
“On this basis, headline inflation is expected to stabilise at around 2 per cent over the medium-term,” it added.
