The €25.4 billion budget surplus that the Government is forecasting for this year is a modern record for Ireland and one of the highest as a percentage of national income recorded by any country. It is boosted by the inclusion of about €14.1 billion due from Apple following the recent European Court of Justice ruling. But the surge in corporation and income taxes are also playing a part, as outlined in the key pre-budget figures published in the White Paper this weekend.
It is an extraordinary bounty and sets the Government up well for the budget in two respects. First, the large forecast surplus for 2024 will allow it to meet the cost for once-off payments to households — energy credits, double child benefit weeks and special welfare measures — and still maintain a big surplus for this year. This will reduce the reported surplus at the end of the year, as will some supplementary estimates to meet overspending.
Second, the exchequer will be in surplus to the tune of €11.8 billion next year, before account is taken of budget day announcements. So there is plenty of leeway for the planned budget tax and spending measures, while also keeping the figures in surplus; and allocating €6 billion to two investment funds for the future.
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The headline surplus figures are calculated on the basis set down by the European Union, which obliges the Government to count all the Apple money in the 2024 figures, as this is now seen as certain to arrive. In cash terms, however, the expectation is that €8 billion will arrive this year and the bulk of the balance in 2025. Given the exchequer’s huge amount of cash resources, this delay in the arrival of some of the money does not present any problems.
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Because they are calculated on a different basis, the figures for the exchequer cash balance are lower, showing a surplus of €13.5 billion this year and €9.6 billion next year. As well as treating the Apple money differently, the EU measure which is now more generally used - the general government balance - counts in other figures, including the surplus on the social insurance fund, out of which many social entitlements are paid.
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This all indicates that, heading towards a general election, there is significant scope for the next government to continue to support and boost State investment and invest in public services. There will be no shortage of manifesto promises.
The Apple money will boost the sums significantly. But the real key is the strength of corporation tax, now expected to be €29.5 billion this year, before counting in the Apple money, up from the midyear estimate of €24.5 billion. Again excluding the portion of the Apple cash expected to arrive next year, the Department of Finance is expecting a similar level of underlying corporation tax next year. While it is not clear what factors are behind this - including the impact on ongoing Organisation for Economic Co-operation and Development reforms - if current trends continue this may again prove conservative.
Meanwhile, the strength of the jobs market has boosted income tax and led to a large surplus on the social insurance fund — due to increases in Pay Related Social Insurance (PRSI) payments. Income tax this year is expected to come in at €35.095 billion and rise by a healthy 6.8 per cent next year to €37.5 billion. Next year’s budget will outline the employment figures underlying this. VAT is expected to rise by 4.1 per cent to €22.5 billion.
Total tax revenue expected in 2025 at €106 billion is just ahead of this year’s total of €105,78 - the higher Apple payments this year affect the comparison.
All of this is, as ever, vulnerable to economic shocks but for now there is significant room in the public finances to absorb a period of slower growth. As well as the surpluses and the Apple money, the National Treasury Management Agency has cash balances of around €26 billion - and that is before the Apple money arrives.
In the medium term, an ageing population and climate change will require higher spending and, quite likely, higher taxes. But for now there is cash to spare in the public finances.
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