The negotiations between the US and the EU on trade have a deadline of July 9th and it is clear from the latest estimates from the Central Bank that a lot is at stake for the Irish economy. In analysis published with its latest quarterly bulletin, Central Bank researchers outline the potential risks to Ireland if there is a fall-off in corporation tax, investment and economic growth.
The outcome of the transatlantic talks remains entirely unpredictable. The mood music appears a little better, but there are some obvious barriers. One is the apparent US insistence that whatever happens the 10 per cent tariffs imposed already will stay in place. Also, it is uncertain what the EU can offer the US – and what the reaction of president Donald Trump will be.
As the Central Bank points out, all this is already having an impact on economic confidence and particularly on investment, leading it to pull back its forecasts for this year.
The bank’s researchers have also done a valuable job in sketching out the risks that lie ahead and the potential impact of tariffs, adding to work already done in Government and by the Economic and Social Research Institute. The economy is vulnerable because of the narrow base of both corporate tax and income tax, as well as the reliance on US multinational investment. In an adverse scenario – where investment into Ireland falls and tax revenues are hit – this could lead to the public finances moving from surplus now into significant deficit over a period of years.
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This shows clearly what is at stake and the risks if changed US policies lead to a fundamental shift in investment patterns, or in how these firms pay their tax. The policy prescriptions are familiar, but nonetheless important. Caution in budget policy and better control of day-to-day spending is needed . This leaves resources for vital State investment, where faster delivery is essential. And politicians need to consider new revenue sources to widen the tax base and prepare for future costs. It is long-term thinking which can easily get lost in the cut and thrust of daily politics.
