Ireland, too much money in the budget but not enough spending imagination: Dublin’s dilemma

While in Europe many ministers are not sleeping at night thinking about how to find the resources for the next budget, In Dublin, the government has a seemingly enviable problem: what to do with a surplus in the public accounts that in 2024 should reach 8.6 billion euros (it was ‘only’ 8.3 billion last year), the result – but not only – of an economy that in 2023 grew at a rate five times higher than estimated. An incredible situation if you consider that just over ten years ago the European Union and the International Monetary Fund had to launch an emergency plan of 67.5 billion euros to save the economy of the island, hit harder than others by the great financial crisis.

In reality this ‘abundance’ has a very specific origin, namely generous taxation of multinationals (until recently just 12.5%, now raised to 15%, practically half of the Italian corporate tax) which has made it a tax haven for web and pharmaceutical giants and more. With Dublin becoming the European hub for many multinationals (not counting success stories like Ryanair) the Irish GDP from 2010 to 2022 has increased by almost 150%, going from 221 to 533 billion dollars, while the per capita GDP is almost triple that of Italy, at 102 thousand dollars.

The result – the Financial Times recalls – is that tax revenues related to corporate taxation in 2023 brought 23.8 billion euros into the state coffers and this year the loot could be 24.5 billion: but these are revenues that the Dublin government itself judges to be volatile and temporary, in any case unlikely to grow at the current level. It is no coincidence that the executive has cut its budget surplus forecasts for the years to come (it had forecast 65 billion euros for 2023-26), but still expects a total surplus of 38 billion euros for 2024-2027.

The fact is, as economist Gerard Brady explains, that “Ireland’s problem is not that it doesn’t have enough moneyis struggling to find ways to turn them into real things that people need.” As the FT explains, one solution could be to devote the surplus to solving infrastructure problems that threaten to strangle Ireland’s boom, from the housing crisis (which has sent house prices soaring) to problems with the electricity grid, water supply, healthcare and public transport.

For now – following the example of countries like Norway – Dublin has chosen to invest more than 100 billion euros of the surplus in two sovereign funds ‘for the future’ by 2035. The fear is that – given the abundance of money – public spending will go too far, overheating the economy and reviving inflation.

But in view of the general elections scheduled for 2025, a ‘generous’ budget at the beginning of October is not excluded with a spending increase of 6.9 billion euros and 1.4 billion euros of additional fiscal measures. In this well-being (at least of the public accounts), there are those who invite to spend the excess money to improve the lives of citizens, given that the rankings describe Ireland as the ‘loneliest’ country in Europe, with almost two thirds of people suffering from anxiety or depression. Incredibly, then, one child in seven lives in families below the poverty line, a sign of a rather unequal distribution of wealth.