IMF Warns Ireland: Budget Support Must Be Temporary, Targeted; Urges Tax Base Broadening
The IMF advised the Irish Government to make household support measures temporary and targeted, and to broaden its tax base by reducing income tax reliefs and cutting reduced VAT rates. The agency also warned EU countries face significant future costs for defence, energy, and pensions, urging reforms to prevent unsustainable public debt levels.
The International Monetary Fund (IMF) advised the Irish Government that budget measures supporting households post-inflation shock, stemming from the US-Israeli war on Iran, should be temporary and targeted at the most vulnerable. This recommendation came in its latest report on the Irish economy, published Monday.
The Washington-based agency suggested reducing «broad-based personal income-tax reliefs and exemptions» to strengthen Ireland's tax base, which relies heavily on volatile corporation tax receipts from multinational companies. IMF assistant director Yan Sun also proposed enhancing local property tax collection and cutting some of Ireland's numerous reduced VAT rates. Sun noted a significant VAT gap in the Republic, similar to the personal income tax regime where nearly a third of the population pays no income tax.
The Coalition plans to cut the hospitality sector's VAT rate from 13.5 per cent to 9 per cent from July, costing the State an estimated €232 million in 2026 and €681 million in 2027. Sun stated the IMF prefers a «limited number» of reduced VAT rates, as many such rates reduce system efficiency. The agency also advocated for «temporary» and «targeted» measures for rising energy costs, rather than broad supports like tax cuts or subsidies. Minister for Finance Simon Harris indicated support in Budget 2027, but Tánaiste considered income tax cuts important for cost-of-living pressures. Sun emphasized the social welfare system as the best way to reach vulnerable households.
Overall, the IMF noted Ireland's strong economic position but projected domestic economy growth in 2026 at half last year's rate. Separately, on Saturday, the IMF warned EU countries face large bills for defence, energy, and pensions over the next 15 years. Without intervention, average EU public debt could reach 130 per cent of GDP by 2040. To prevent this, the IMF suggested reforms including improving incentives for cross-bloc labor mobility, integrating energy markets, facilitating cross-border savings flow, unifying laws, and implementing pension reforms with a higher retirement age.