Giveaway budget likely after latest ‘windfall’ corporate tax forecast – The Irish Times

Another budget squandering is on the cards later this year after the government released updated economic forecasts on Tuesday that showed huge surpluses are expected in public finances in the coming years.

Continued growth in corporate tax revenue will net the coalition a hoard of cash as it prepares for an election in the second half of next year or early 2025, the numbers show.

The document – known as the Stability Program Update required by EU regulations – shows the government expects a budget surplus of over €12 billion next year. When other factors are added – including a large surplus in the Social Security Fund – the general government budget balance is expected to be as high as 16 billion euros next year.

[ Coalition giving renewed consideration to pre-budget tax breaks for renters and landlords ]

Last year, between recurring spending commitments and one-off giveaways, the government was able to allocate a daily package of more than 11 billion euros. Figures released on Tuesday show ministers are expected to be able to repeat that giveaway this year.

However, both Treasury Secretary Michael McGrath and Public Spending Secretary Paschal Donohoe sought to downplay talk of big giveaways when announcing the results.

In particular, they warned of the unreliability of much of corporate tax revenue and the risk of building recurring spending commitments on the basis of potentially temporary revenue.

[ Government collects another €1bn corporate tax windfall in March ]

[ The Irish Times view on the latest exchequer figures: a surplus of riches ]

“Half the income from corporate taxes is a fluke and we can’t count on that,” said Mr. McGrath.

Treasury officials now say as much as €12 billion of the €24 billion in corporate tax revenue expected this year could potentially disappear in the coming years.

In addition, Treasury Department chief economist John McCarthy has repeatedly warned of other “downside risks”, including inflation, financial sector turmoil and the escalation of the war in Ukraine.

In its stability program update document, the department noted that energy prices had turned around faster than previously thought in recent months, “and on that basis headline inflation is now on a downward trend”.

Headline inflation in Ireland is expected to fall to 4.9 per cent this year and weaken further to 2.5 per cent next year.

But the ministry warned that core inflation, which excludes energy and food prices, could prove “more stubborn” and durable than previously thought.

[ Inflation slows to 7.7% in March but prices still edge higher ]

“Given the tight labor market, there is a risk that wage growth could prove higher than expected, which could trigger second-round effects and stall the expected moderation in headline and core inflation this year and next,” it said.

But privately, senior political sources admit that pressure for big spending increases is likely to be strong from their fellow ministers and from party leaders eyeing general elections.

The government will host the national business dialogue with business groups, unions and other stakeholders ahead of the summer to collect input ahead of the budget process. First talks with public sector unions are also likely before the summer as part of efforts to agree a new national collective agreement for public employees before the current agreement expires in the autumn. With the government sitting on large surpluses, pressure from interest groups is likely to be high.