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Ireland’s government should be saving far more of its bumper corporation tax receipts, treating them as a “high-risk, finite resource” in much the same way as Norway views its oil wealth, an independent budget watchdog has warned.
The Irish Fiscal Advisory Council said on Thursday that spending was rising twice as fast as would be sustainable amid a booming economy and the large bonanza that the country received from large, mostly US multinational, companies.
“We have a lot to look forward to in the coming years,” said council chair Seamus Coffey. “But given Ireland’s ageing population, and large existing commitments, we shouldn’t get too carried away.”
The warning comes as the country’s two main coalition partners — the centrist Fianna Fáil party, which emerged the strongest from last Friday’s general election, and the centre-right Fine Gael party — prepared for negotiations on the composition of Ireland’s new government, likely involving the support of small independents.
A shared policy programme will then have to be hammered out — a process not expected to culminate until the new year. A booming economy and vast resources will make creating consensus easier.
Corporation tax receipts have almost tripled since 2019 and amounted to €35bn for January to November, 59 per cent up the same period last year and almost a fifth higher than the €30bn figure expected for the entire year. That included two-thirds of the approximately €14bn in back taxes from tech giant Apple that the European Court of Justice ordered Ireland to receive.
But half of this year’s expected €24bn budget surplus cannot be explained by domestic growth and is considered “windfall” in nature.
Without the corporate tax windfall, Ireland would be running a deficit of €6.3bn a year, Ifac said.
“The sensible response to these risks is to treat excess corporation tax receipts like Norway treats its oil revenues: as a finite and risky resource,” the council said in its report.
“Unlike Norway, which saves all its risky resources, spending only the investment returns, Ireland’s policy now is to save just over one-third.”
With much of the bonanza coming from just a few US companies, Ireland is vulnerable to any abrupt policy shift by president-elect Donald Trump.
While the government estimates it will collect a total of €84bn in windfall tax between 2026 and 2030, it only plans to put €31bn of that multiyear amount in its two new sovereign wealth funds.
The council also estimates that Ireland is likely to spend 40 per cent of its corporate tax windfall in 2024, up from about a third in 2023.
Ireland’s two biggest challenges ahead include funding future pensions and the climate transition. Ifac warned that the government could face hefty fines or charges if it missed its emissions targets — as it is on course to do.
Compliance costs, which could include having to transfer large sums to neighbouring countries by buying carbon credits, could be as high as €20bn, constituting “a colossal waste of taxpayers’ money — equivalent to virtually an entire year’s capital budget,” Ifac said.
Ifac also sharply criticised the outgoing government for including “unrealistic” forecasts and a lack of transparency in its last budget.
It warned that public spending, net of tax cuts, was set to rise by more than 6 per cent this year and next, even after adjusting for inflation — a level double the upper estimates of Ireland’s sustainable growth rates.
“Budget 2025 once again saw an increase in spending, net of tax cuts, that was beyond what the Council considers appropriate,” Ifac said. “This does not represent prudent management of the economy.”
Data visualisation by Jana Tauschinski in London
