There are clear signs that the Irish economy is starting to turn, or at least that the period of extraordinary growth since the pandemic is tailing off.
Whether this is a welcome cooling in a growth rate that has added to pressure on housing and infrastructure and caused labour shortages across the economy, or something more serious, remains to be seen. The answer will go a long way to determining whether Simon Harris regrets his decision to take the job of Minister for Finance.
Jobs figures published this week by the Central Statistics Office show total employment was largely flat over the spring and summer. Unemployment is rising; it remains generally low, though there is an ongoing spike in youth joblessness that bears watching. Employment in the Information, Communication and Technology (ICT) sector, which includes the main digital service multinationals, is down over the past year, even if the extent of the fall is not entirely clear.
None of this suggests the sky is going to fall in. But it does mean things are going to be different for Harris than they were for Paschal Donohoe. While his period in the two budget ministries of finance and public spending was interrupted by Covid-19 and the cost-of-living crisis, the longer-term backdrop has been strong growth. Since 2020, the number of people employed in the Irish economy has risen by an extraordinary amount, by close to 550,000 to reach a record 2.8 million.
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Now Harris is facing a more mixed picture as Irish growth – long expected to slow – looks like it is finally doing so. And he could also have to confront the fallout for Ireland of the bursting – or at least deflation – of an AI-driven tech bubble in the US stock market.
A wobble in stocks this week, despite strong figures from Nvidia, the chip manufacturer seen as a bellwether for the sector, suggests that investors are starting to doubt their own spin that “this time is different”. This has implications for the tech sector here and there are risks, as well, that a sharp market fall could lead to wider financial instability, particularly based around parts of the system outside the loop of normal regulation – such as non-bank finance and payment systems based on digital currencies.
There is more than enough, in other words, to occupy a new finance minister. On the plus side, corporate taxes remain strong and this month’s key figures are likely to be good. Another big budget surplus is in prospect despite a large State spending overrun of more than €4 billion. The flipside is that a big tax take – and a renewed surge in Irish pharma exports to the US – will raise flags again in the White House. Ireland will again be on Trump’s radar.
Strong corporate taxes – that could continue into next year – raise questions about the budgetary approach that Harris will take. Is a Minister who seems obsessed with the news cycle prepared to dig in – as we are told public spending minister Jack Chambers and Donohoe were planning to do – to keep the 2025 budget figures on track and put the squeeze on overspending departments? Saying “no” as corporate tax continues to flow in would not be easy.
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Ireland’s political debate has been conducted on the basis that the party can keep on going. We have got used to spending growth of 8 or 9 per cent a year. Harris takes office as senior figures in the Coalition have been told that a medium-term plan that Chambers and Donohoe had been working on shows that day-to-day spending growth needs to slow sharply if Ireland is to afford its big investment spending plans.
With just two years in the finance role before he leaves for higher office is Harris prepared to sell this message and start acting on it – probably still spending more than the Fiscal Council wants but less than his colleagues demand? Or does he get caught up in short-termism and trying to “fix” things – for example, rolling out new blanket tax breaks for builders or returning to short-term supports for households?
If he is doing his job, there will be periods we don’t hear much from him. And this doesn’t seem in his nature. But if Harris is smart, he will be prepared to take a bit of flak now – in his two years in Finance – to keep things on an even keel for when he takes over as Taoiseach late in 2027. It is easy to underplay the role of the electoral cycle in economic and budget planning, but it is real. A marker will be whether, in next October’s budget, he targets another significant surplus for 2027.
There will also be huge demands on his time and attention in the wider aspects of the role. The Minister for Finance acts as a kind of chief economic officer for the State, interacting internationally and also with big investors in Ireland. This was one of Donohoe’s strong suits; his handling of the international corporate tax talks was one of the best examples of this. Through years of negotiations overseen by the OECD, the money kept flowing into the State. And through this, Donohoe managed to persuade big investors of a stable and relatively predictable outlook.
This is new ground for Harris and is hugely demanding on ministerial time. There is a real question of whether a Tánaiste – with all the other responsibilities this brings – has enough bandwidth to deal with this. A lot of it is quiet, background work, interacting with the EU and US and calming nerves here. Ireland’s big corporate taxpayers are already worried about our creaking infrastructure and lack of housing – and the uncertainties caused by Trump’s policies in pharma, tech and even Washington’s reaction to the Occupied Territories Bill. Big investors here crave certainty and predictability and the Minister for Finance is seen as the key figure offering this.
If the tech bubble bursts or deflates, these pressures will become all the more intense. Harris, as Minister for Finance, would be at the centre of this State’s response. It would – on the plus side – be an opportunity for him to build his political reputation. But being Tánaiste and Minister for Finance at the same time is going to be a stretch, even for the most energetic of Ministers.
