The Government’s underlying budget deficit, which excludes windfall taxes, is expected to balloon to almost €14 billion next year, according to the Department of Finance’s latest projections.
In its annual economic and fiscal outlook, published alongside Budget 2026, the department forecasts the Government will run a budget surplus of just over €5 billion in 2026.
However, when windfall corporation taxes are removed, this morphs into an underlying deficit of €13.6 billion (nearly 4 per cent of national income), reflecting the risk posed to the public finances from potential changes in the global trading environment.
The Government has been warned that receipts from the business tax are highly dependent on a small number of large US multinationals, which are now under pressure from US president Donald Trump to manufacture back home in the US.
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Public expenditure is forecast to grow by 8 per cent to €118 billion next year, with the public sector wage bill, spending on welfare and pensions, and capital spending on the National Development Plan (NDP) all expected to increase significantly.
The public sector pay bill is expected to be €39 billion in 2026, more than double what it was a decade ago.
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“It’s striking that the Government has chosen to maintain a sharp 8 per cent pace of public expenditure growth, at a time when tax revenues are slowing,” Bank of Ireland chief economist Conall Mac Coille said.
“That only a €5 billion budget surplus is forecast for 2026, [it] makes clear the bulk of the potentially unstable €32 billion corporate tax base is being spent,” he said.
On the upside, the department’s document predicts corporate tax receipts will rise to €32 billion this year and to €34 billion in 2026.
“This is calibrated on the assumption of continued increases in corporate profitability next year,” the department said.
“Importantly, the projection also incorporates revised assumptions regarding the impact on the corporate tax yield from the OECD’s (Organisation for Economic Co-operation and Development) Two Pillar Framework,” it said.
Under the framework, big multinationals with a turnover above €750 million have been liable to pay a new minimum tax rate of 15 per cent since 2024.
They are due to make their initial payments under the new rate next year. This is expected to boost tax receipts here by an additional €3 billion next year and €2 billion in 2027.
Several big taxpayers here have been availing of generous tax-cutting capital allowances which are due to run out, meaning they will be liable to pay more tax – another factor likely to drive receipts.
The department said trade policies and heightened geopolitical tensions shaped the economic outlook.
“While measures of trade policy uncertainty have receded from the exceptionally high levels recorded in the early part of the year – helped by trade agreements between the US and several jurisdictions, including the European Union – uncertainty remains elevated relative to historical norms,” it said.
