In stark contrast to many of its European counterparts, Ireland finds itself in a robust financial position. Nevertheless, economists caution the government to adopt a savings-oriented approach, even though financing electoral campaigns can be costly.
During a heated television debate between Ireland’s political figures this week, economic policies took center stage. The nation is set to vote in a general election today, called prematurely by current Taoiseach Simon Harris.
The leader of the center-right Fine Gael party faces off against Michéal Martin from Fianna Fáil and Mary Lou McDonald of Sinn Féin in this high-stakes competition.
Unlike the financial struggles observed in other parts of Europe, Ireland enters this election cycle with full state coffers, low unemployment, and a decline in inflation rates.
However, reports of economic prosperity do not tell the entire story. Many Irish citizens continue to grapple with high prices, and persistent structural problems make essential services like housing and healthcare increasingly inaccessible.
Ireland: A Hub for Multinationals
The country’s wealth, especially during a broader regional economic slump, is largely attributable to its long-standing affinity for multinational corporations.
For years, Ireland’s corporate tax rate—now raised—stood at an attractive 12.5%, transforming it into a desirable destination for large corporations, particularly along Dublin’s River Liffey.
In 2015, the government collected €7 billion in corporation tax revenues, but this figure is projected to rise to between €23 billion and €24 billion this year. Recently, Ireland received a somewhat awkward but favorable ruling from the European Court of Justice (ECJ), which mandated that Apple pay €13 billion in back taxes for benefits deemed illegal.
Pursuing Fiscal Responsibility
A significant challenge for Ireland’s political leaders is the necessity for fiscal prudence, despite a budget surplus. Economists advocate for cautious spending, primarily due to the unstable nature of the current tax revenue, heavily reliant on payments from a limited number of large firms.
According to Ricardo Amaro, lead economist at Oxford Economics, “Ireland’s underlying fiscal position is in deficit and deteriorating if the excess corporation taxes are excluded.” He underscored the government’s inconsistent adherence to its own expenditure rules, introduced in 2021, which were meant to limit spending growth to 5% annually unless supported by tax increases.
Furthermore, a large budget could inadvertently trigger inflationary pressures. By implementing tax cuts and financial giveaways, consumer demand may spike, resulting in increased prices.
With high employment levels, consumer spending is expected to remain strong, suggesting that additional government stimulus may be unnecessary. Additionally, the tight labor market could drive up wages, as companies compete for skilled workers.
Budget Considerations
The recent budget, announced by Ireland’s coalition government in October, has been criticized by the Irish Fiscal Advisory Council (IFAC) for lacking fiscal discipline.
This new budget for 2025 totals €9.1 billion, and the IFAC has warned that such spending mirrors past mistakes of flooding the economy with cash during times of full employment. The scars of the Celtic Tiger, a period of rapid growth followed by a catastrophic crash in 2008, still loom large for many economists.
Once heralded for its GDP growth driven by foreign direct investment, the country saw its economic landscape dramatically shift during the last financial crisis, when risky lending and over-expansion led to a market collapse that required a government bailout.
Learning from Past Mistakes
During the leaders’ debate, Simon Harris warned, “The bailout program is not a relic of the past.” This sentiment was echoed by his competitors, who acknowledged historical financial scars in their arguments for prudent fiscal policy.
While Sinn Féin was critiqued for perceived fiscal improvidence, McDonald pointed out that Martin was also part of the government during previous economic upheavals. The coalition currently in power, which includes Harris and Martin, has allocated some state revenue into sovereign wealth funds, though IFAC notes this investment is less than half of the excess corporation tax receipts.
According to Barra Roantree, an assistant professor of economics at Trinity College Dublin, all three major parties are banking on the sustainability of high corporation tax revenues from a few American multinational firms. If the U.S. government acts to introduce tax breaks, it may incentivize companies to relocate, jeopardizing Ireland’s fiscal stability. Any tariff proposals could also negatively impact Irish exports.
The Political Landscape and Voter Expectations
Despite calls for fiscal prudence, political pressures push leaders toward enticing financial proposals, as highlighted by Professor John McHale, head of economics at Galway University. He indicated that pressing needs in housing, infrastructure, and rising living costs complicate the political landscape for fiscal responsibility.
When comparing the spending plans of the three leading parties, all propose a gradual decline in the projected cumulative surplus. However, Sinn Féin’s platform is characterized by the most ambitious spending intentions and the steepest reduction of the surplus.
As politicians discuss the balance between infrastructure investments and immediate economic giveaways, the question remains: who will the Irish electorate trust to prioritize these long-term investments over short-term benefits? Current polls indicate a competitive race, with Fianna Fáil slightly ahead of Fine Gael, followed closely by Sinn Féin.
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Photo credit & article inspired by: Euronews
