The exchequer returns for 2024 show that the budget remained in strong surplus as corporation and income taxes surged. There are concerns about the long-term trends in these taxes and Ireland’s reliance on them, but for now revenues remain remarkably buoyant, helped last year by the Apple receipts.
The next government needs to see that as an opportunity which cannot be wasted. In turn this requires two things to happen. The first is a new energy and efficiency in delivering major projects and improving public services. The second is a realistic framework for managing the public finances, based on ensuring that Ireland does not head for another boom to bust cycle.
The political appetite for such a framework is questionable. Fiscal prudence is not a vote-winner, and it will be tempting to hope that the tax windfall will continue and to play down the risks.
However, the incoming coalition -– likely to be comprised of Fianna Fáil, Fine Gael and a group of Independents – might consider the political dangers, too. The public finances are likely to remain strong this year at least and possibly into 2026. The potential impact of changes made by the Trump administration are more likely to hit from 2026 on – by which time the costs of combatting climate change and dealing with an ageing population will also be increasingly apparent.
The risk to the next coalition, if it does not pursue a prudent policy, is that it ends up having to cut spending and hike taxes in the second half of its term. This would be dreadful economics, as it would be likely to worsen a slowdown, and bad politics, as the next general election would be approaching.
To avoid this, the next administration needs some kind of public finance rulebook, a framework within which policy will be set. And, unlike the outgoing Government, it needs to take it seriously. On current forecasts this can be done, while still leaving plenty of cash for improving public services and funding State investment. It is a question of getting the balance right.
Change will be needed. A sensible policy is likely to require a move away from the once-off, universal payments to households of recent years. And a real commitment to keep spending growth to a set figure, while also putting money away in the two funds for the future established by the outgoing Coalition. Indeed, there could even be a case to increase payments into these funds in the short term if tax revenue growth remains strong.
Taking the alternative route and continuing a year-by-year approach to the public finances, increasing spending by the maximum possible each year, would mean taking ever-increasing risks. This would be a mistake. The strength of the public finances offers a real, long-term opportunity to the State to invest in – and prepare for – the future, which must not be wasted.