This is the last weekend before the war, the trade war set to begin between the US and EU next Wednesday. Ireland is between the crosshairs. The expected move by the Trump administration to introduce tariffs on a range of goods, including pharma products, is a direct attack on our economic model, the largesse from which funds our spending, politics and public administration. Now, as in the economic crash of 2008, we can do little about the big picture globally.
The unnecessary pain will come from failure to act on issues within our control. It is impossible to predict what will happen next week or the consequences. Once again, we have arrived in a crisis for which we are unfit and unprepared.
The Government is strategising intensely about what to do, but it is little more than manic window dressing. Take away the Apple tax windfall of €11 billion last year, and 28 per cent of total tax was still Corporation Tax. Excluding that once-off payment, a budget surplus of €1.8 billion remained. In a country that spent €103 billion on itself, compared to €56 billion in 2016, those leftovers will be quickly eaten.
It is difficult to talk about that degree of delinquency dispassionately. At their pre-crash peak in 2007, transaction taxes generated by the property boom accounted for 16 per cent of tax receipts, double what they had been just four years before. That’s what froth feels like. No similar crash is likely now, but even a jolt will be disproportionate because of policies that repeated past mistakes and failed to provide for the future. The critical mistake was to refuse to broaden the tax base and opportunistically cut it back, ever increasing dependence on Corporation Tax alone.
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In 2007, around 42 per cent of all taxpayers were outside the income tax net. That, and increased public spending, lay at the heart of the subsequent collapse of the public finances. The Irish Tax Institute notes that 33% per cent of all taxpayers paid neither income tax nor USC in 2024. The top 1 per cent of income earners contributed just under 25 per cent of all income tax and USC payments. A significant proportion of those high earners work for multinational companies. In 2022, 40 per cent of all income tax and USC receipts came from the multinational sector. If it lands, it’s a double whammy.
A novelist could not have predicted events since Donald Trump’s inauguration. We expected – but ignored – the fact that if anything went wrong on the multinational front, we would be badly exposed if we did not rebalance the tax base. Last October, on the eve of the election, the first tranche of just over €6 billion was distributed to two national reserve funds. It is a good intention, and just in time to be a talking point, but not enough to be a bulwark now.
Water charges never happened. Since 2016, the USC has been unwound. Property tax, however, is the outlier in Ireland compared to most European countries. We don’t have any to speak of; the Local Property Tax is derisory. An exception is carbon tax. When the Greens left government in 2011, it froze until they came back in 2020, and thereafter increased again.
Increasing or cutting specific taxes are not necessarily good or bad actions. But to refuse to tax wealth in the area that generates most of it is wilful negligence. Bizarrely, the left – and what was once nominally right leaning politics – coalesce on this point.
[ Ireland is willing to be the villain on tax to avoid biting the hand that feedsOpens in new window ]
The country is in thrall to older, property owning, and usually pensioned voters. That is set to intensify as demographics change, and more heavy lifting must be done by fewer people of working age, paying higher rents while scrambling to get on the housing ladder.
Our system is the sow eating her own farrow. The cost of the inequity is borne by younger, unhoused, and under-pensioned people. A property charge that made a meaningful contribution to the Exchequer would also dampen the rise in property prices. Instead, even as public spending increases by a further 7 per cent this year on an unstable tax base, the system front loads the net benefit of increased value on to existing property owners. They then use political power to test the system they benefit most from, to the point of destruction.
The general election campaign last November was a raucous wake for an era that was already over. We cannot continue to spend like this and tax like that. The sums don’t add up. What cannot continue either is the lethargy of an administrative state that under-delivers at a cost we can no longer afford. We will meet events next week carrying forward the cumulative costs of our inefficiency and self-indulgence. The single most important next step is a reality check. The next step after that is to do something about it.
There is no need for catastrophising. Other countries deliver infrastructure and provide for themselves with a better-balanced tax base. The scale of our fortune means we have some ballast, and maybe a little time. We can only hope that for whatever investment goes eventually, much will remain. The fear now is that Ireland (and our pharmaceuticals especially) will provide the meat in the US-EU sandwich in circumstances where we have wasted hard-won diplomatic advantage as fecklessly as we spent the corporation tax boom of the past decade.
