Central Bank Warns on Corporate Tax Reliance, Urges Infrastructure Investment

Ireland's Central Bank, in its quarterly report, echoed warnings from Séamus Coffey, chairman of the Irish Fiscal Advisory Council (Ifac), regarding the public finances' reliance on volatile corporate taxes. This situation draws parallels to Ireland's dependence on property taxes before the 2008 financial crash. Despite this, Ireland is in a strong economic position, presenting a «window of opportunity» to strengthen public finances and invest in vital infrastructure.

Government spending has increased by 50% in cash terms since 2019. Adjusted for inflation and population growth, this is a 15% per capita rise, compared to an 11% EU average. Corporate taxes, now 23% of revenues, up from 12% in 2019, have been crucial in funding this. A €9 billion surplus is forecast for this year, though an «underlying» deficit exists when windfall corporate tax is excluded.

The Coalition faces two key tasks: ensuring value for money from State investment and accelerating delivery, especially for infrastructure like housing, in an economy already at full capacity. The second is to control budget figures, as routine overspending has undermined the budgetary process's credibility. Both the Central Bank and Ifac advocate for a new spending rule, emphasizing the need to meet existing budget targets to reduce risk and restore credibility.