S&P agency upgrades Ireland’s credit rating amid rising tax revenues

S&P ratings agency has upgraded Ireland’s long-term sovereign credit rating to a level not seen since August 2010, describing the outlook as “stable”.

On Friday, S&P released a statement announcing it had raised Ireland’s rating to AA, up from AA-, making it the agency’s first change to Ireland’s long-term rating since November 2019. This is the 3rd highest category within S&P ratings.

The agency said “solid” tax revenue growth will help Ireland post budgetary surpluses through 2026 despite spending pressure, “continuing to put the government’s net debt burden on a steep downward path”.

“Like other advanced economies, the Irish economy is set to decelerate this year but should continue to outperform peers while avoiding a technical recession,” it added.

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It comes after Moody’s ratings agency raised Ireland’s foreign and domestic long-term issuer and domestic senior unsecured ratings to Aa3 from A1 last month.

The increasing rating puts the country on par with core Eurozone countries France and Belgium. There are now just five countries in the euro area with a higher S&P rating: Germany, Luxembourg, Netherlands, Austria and Finland.

The Government ran a record budget surplus of €8 billion last year as strong tax revenues offset the additional spending on Covid and energy-related supports. This follows two years of successive deficits.

The Department of Finance predicts that windfall corporation tax revenues will continue to rise for the next three years, leading to an overall budget surplus of €10 billion this year and more than €20bn by 2026, as the economy keeps growing.

Minister for Finance Michael McGrath welcomed the upgrade to Ireland’s rate, describing it as a “further vote of confidence in the Irish economy and the management of the public finances”.

“I am determined that the progress we are making in putting the public finances on a sound long term footing will be further advanced in the period ahead,” he said.

“A total of €6 billion has now been transferred to the National Reserve Fund to strengthen our fiscal buffers and I recently published a Departmental paper setting out high level principles regarding a more long-term focused savings fund.”

Mr McGrath said while he is confident there will be resources from recurring tax revenues to reduce the burden of income tax, increase core welfare payments, invest in public services and infrastructure in Budget 2024 and beyond, he believes there is a “once in a generation opportunity” to use windfall receipts to put the nation’s finances on a more sustainable, long-term footing.

“This will be an important initiative to secure the future wellbeing of our economy and society and will require bringing legislation to the Oireachtas setting out how such a fund will be built up and the circumstances in which we will draw on it,” he said.

“Work on this by my officials is continuing and I intend to bring a more detailed proposal to Government for consideration in the coming weeks.”