BY JOHN ELLIS, FINANCIAL ADVISOR
The latest figures from the Department of Finance tell us something we have heard before. The State is still taking in huge amounts of tax, but that does not necessarily mean the public finances are as strong as the headline numbers suggest.
Tax receipts for the first seven months were close to €60 billion. Corporation tax got a boost in July, with multinationals paying another €1 billion or so under the new 15% global minimum rate. Income tax is also holding up, which is hardly surprising when employment remains strong. So far, so good.
The problem is on the other side of the balance sheet. The Irish Fiscal Advisory Council has again raised concerns about spending overruns. Spending was up by more than 7%, with health and education already running well ahead of budget. There is little sign this will change quickly.
Simon Harris has spoken of the need to “strike a careful balance” in Budget 2027. The Department of Finance Summer Economic Statement allows for an €8.5 billion package, €7 billion in extra spending and €1.5 billion in tax measures. That is an enormous amount of money.
But it is worth remembering where much of the State’s tax income comes from. Ireland has become heavily dependent on corporation tax from a small number of large multinationals. That money has been useful. It has helped pay for public services and allowed tax cuts and higher spending. The danger is assuming it will always be there. We have been here before.
There is another side to the story in people’s own households. Personal borrowing reached more than €3 billion in the twelve months to March. People are taking out loans for cars, home improvements, electric vehicles and even weddings. The Banking and Payments Federation Ireland sees this as evidence of continuing consumer confidence.
Maybe it is. But there is a difference between being confident enough to spend and being able to comfortably afford more debt. With the cost of living still high and interest rates nowhere near the levels of a decade ago, taking on extra borrowing is not without risk.
The banking sector is also changing. PTSB shareholders have approved the €1.62 billion takeover by Austria’s Bawag. The State is expected to receive around €930 million for its stake. The deal still has hurdles to clear, but it marks another step in dealing with the legacy of the banking crash.
The wider economy is mixed. GDP bounced back in the second quarter after falling earlier in the year. Services are holding up, but energy prices, the Middle East situation and the question of how long the multinational tax bonanza can last all remain concerns.
It is easy to look at €60 billion in tax receipts and assume the money is there to be spent. A significant chunk, however, comes from sources that may not be as reliable in five or ten years’ time. That should make us all a little cautious.
For households, there is not much we can do about Government spending decisions. What we can do is keep an eye on our own finances. With costs still under pressure, it makes sense to know what you are paying on loans and insurance and to deal with expensive debt where you can. There is little point chasing a better return on savings if you are paying a high rate of interest on what you owe.
Keep an eye on the October Budget. Any income tax reduction will be welcome to families feeling the squeeze. But a tax cut here or there will not change the bigger picture. Ireland has enjoyed the corporation tax boom for a long time.
The real test is what we do while the money is still coming in. There will always be a temptation to keep increasing spending and assume the good times will continue. The wiser course is to put the State’s finances on a firmer footing and prepare for the day when tax receipts are not quite so impressive. We have been warned often enough. It would be a pity if we waited for that day to arrive before taking the warnings seriously.
T: 086 8362633
