The Government’s plans for Budget 2026 will limit the State’s flexibility to respond to economic downturns at a time of heightened global instability and uncertainty around the future of Ireland’s corporation tax bonanza, an Oireachtas committee heard on Tuesday.
Members of the cross-party Select Committee on Budgetary Oversight were also warned that while the Republic’s export base is expected to remain resilient in the face of US tariffs, the economy is likely to be one percentage point smaller as a consequence of the levies.
On Tuesday, representatives from the Central Bank of Ireland, the Nevin Economic Institute (NERI), and employers’ group Ibec made submissions to the committee in advance of the publication of its pre-budget report.
Members heard that corporation tax receipts have ballooned fourfold since 2015, when they would have covered just three-quarters of Government spending on education.
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“Last year, they equalled the combined Government spending on education, housing, transport, and justice,” said Robert Kelly, director of economic and statistics at the Central Bank.
Corporation taxes are expected to continue to grow in the near term, he said.
However, declining export profits for Ireland-based multinationals arising from US president Donald Trump’s trade policy could still lead to a reduction in receipts. Economic growth is also expected to moderate from 2.9 per cent to 2 per cent in the coming years, Mr Kelly said, with US tariffs expected to be 1 per cent smaller “relative to a tariff-free scenario”.
While the decision to direct some “excess” corporation tax receipts into long-term savings vehicles like the Future Ireland Fund is “a welcome step”, the Government will need to find additional revenue “to keep the public finances on a sustainable path”, he said.
In July’s summer economic statement (SES), the Coalition parties outlined an overall package of €9.4 billion for Budget 2026. It will comprise additional spending commitments of €7.9 billion and tax cuts of €1.5 billion.
What can we potentially look forward to in Budget 2026?
Mr Kelly said the plans envisage an additional €3 billion in spending next year, well above the Government’s own 5 per cent spending rule, and indicating a “significant rise in Ireland’s underlying budget deficit”, from €6.6 billion to €13.9 billion.
“Maintaining this expansionary fiscal policy during a period of economic growth limits our flexibility to respond with budgetary support during a future economic downturn,” Mr Kelly said.
Against this backdrop, the economist said the Coalition should look to broaden the tax base by “reforming reliefs, property taxes, consumption taxes and social-insurance contributions”.
The Government should also introduce a “credible” fiscal anchor, limiting annual spending increases to around 4 per cent or 5 per cent.
Representatives from NERI, meanwhile, argued that the Coalition’s €7.9 billion spending commitments “would be better accompanied by a €1.5 billion increase in taxes, leaving an overall €6.4 billion net package”.
Tom McDonnell, codirector of the trade union-backed think-tank, said “cutting taxes during a boom makes little economic sense” and “flies in the face” of the Commission on Taxation and Welfare’s recommendation for “gradual but material” increases in Government revenue.
He also called on the Coalition to abandon its plans to extend the 9 per cent VAT rate to the hospitality sector and commended its commitment to increasing spending on infrastructure, but called for greater emphasis on public research and development (R&D).
Ibec chief economist Gerard Brady told committee members that the Republic cannot be complacent as multinationals begin to review their global operations in light of the Trump tariffs.
Enhancing the R&D tax credit to “support all forms of innovation and to support global collaboration” would be one policy “lever” that could help attract investment, he said.
Minister for Finance Paschal Donohoe and Minister for Public Expenditure Jack Chambers will deliver the budget on Tuesday, October 7th.
