Around Europe the talk is of a threat of recession, of national budgets under pressure. In Ireland, the economy has put in another solid year of growth and the budget remains in significant surplus. It is tempting to see Ireland as avoiding gravity, but the outperformance here in terms of the headline economic figures is now regular. Whether it can continue is the question.
Ireland’s economic data is hard to interpret because of the impact of big multinationals and their accounting practices. But one figure does tell much of the story. The number of people at work in Ireland rose by almost 100,000 in the 12 months to October 2024 – the most recent figures – increasing at an annual rate of 3.7 per cent and taking the total to a record 2.8 million. Despite an uncertain international backdrop and difficulties for companies in finding staff, total employment is still increasing strongly, matching the overall growth in the domestic economy.
With wages also on the up and the rate of inflation dropping sharply, living standards have been rising after a few difficult years. Despite the outgoing Government going on a spending spree before the general election, a significant budget surplus is in prospect for this year and an additional €6 billion has been set aside this year in two funds designed to support future spending. At a time when many exchequers are under pressure, Ireland’s performance stands out. An important caveat, however, is that the Department of Finance estimates that if the windfall element of corporation tax receipts are excluded, then the public finances would actually be in deficit.
Ireland’s reliance on potentially volatile corporate tax revenues has been a much-discussed issue. It was framed in 2024 by the decision of the European Court of Justice (ECJ) that Apple must repay some €14 billion to Ireland due to what it found to be an illegal policy by Ireland which gave the company special treatment. Accounting for this payment in the 2024 figures will bring the budget surplus, under the EU measure, to close to €24 billion this year on the latest Department of Finance estimates.
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The ECJ decision set off fresh discussion about Ireland’s corporate tax practices. For Ireland, this comes at a delicate time. The extraordinary growth in these revenues in Ireland had already garnered international attention amid renewed accusations that Ireland is a tax haven.
Some uncertainty surrounds these revenues as Donald Trump enters the White House with a policy of attracting multinational investment back to the US. His threats of tariffs and tax changes pose risks to Ireland, though what he will actually do remains unclear. A period of hectic economic diplomacy is in prospect as Irish – and EU – representatives try to get a measure of Trump’s policies.
A point of particular vulnerability for Ireland is the large amount of exports from the Irish operations of US pharmaceutical companies back to the American market. Were Trump to target these for tariffs, the implications for Ireland could be serious. In the longer term, his stated policy of economic nationalism continues a pull-back from globalisation evident over the past couple of years, as political populism takes hold. As a country which benefits from the global flow of trade and finance, this is potentially problematic for Ireland.
The continuation of a flow of strong tax revenues is vital to underpin Ireland’s ability to continue to invest in housing and infrastructure, addressing key shortcomings. The housing crisis – in all its manifestations – continues to take a heavy toll. The Commission on Housing, which reported during the year, recommended a fundamental policy reset, but this was largely ignored by the outgoing Government. It remains to be seen what approach the next administration will take. Housing supply may pick up a bit next year, but the social and economic costs of the shortfall in provision are significant. As this year ended, house prices continued to rise at an annual rate of 10 per cent, already-stratospheric rents remained firmly on the rise and the homeless figures were approaching 15,000 people. Stress remains, in other words, in all areas of the market.
To build more houses, big investment in water and energy infrastructure is also needed. These are also essential for future foreign direct investment, with influential bodies like Ibec and the American Chamber of Commerce Ireland increasingly vocal on the infrastructure issue as the year went on. And more investment in the electricity grid is a key part of the energy transition, as it is needed to handle the increased supply of renewable energy, due to come in particular from wind. Here, again, Ireland is lagging behind in investment plans for offshore wind in particular and this means that climate targets for 2030 are unlikely to be achieved.
The road ahead is clear enough – use the funds coming from strong corporate and income tax to invest in these key areas. The challenge is doing so with the economy already at full capacity and the planning system still leading to interminable delays. Breaking this logjam is vital if the new government is to succeed.