Ireland has resisted the recent trend, observed over the past 12 months in many western democracies, of punishing incumbent governments and embracing populism. The results of our election were less fragmented than some feared, reflecting Ireland’s strong economic position and the electorate’s emphasis on stability.
The economic impact of president-elect Donald Trump’s return to power in the United States was a substantial backdrop to the Irish election campaign.
But, in analysing the US’s economic impact on Ireland and Europe, it is important to note that US economic policy has for years focused on vigorously competing to retain investment within its borders – an “America First” strategy. This approach has spanned administrations, from Trump’s Tax Cuts and Jobs Act to Joe Biden’s Inflation Reduction Act and CHIPS Act. The recent US election results will most likely reinforce this trend.
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While we may see a shift from Biden’s subsidy-focused policies to measures around trade and corporate taxation, US economic policy has long had the goal of boosting domestic investment.
Subtle differences exist, though. The US has been the primary driver of global consumer demand for four decades. Under a Trump presidency, the focus shifted toward reversing this trend by reshoring manufacturing jobs. Trump 2.0′s campaign rhetoric now centres more on improving living standards, promising deficit-expanding tax cuts and reduced consumer prices. However, priorities such as higher tariffs and a weaker dollar may not align seamlessly.
We cannot just blame geopolitical shifts for the challenges we face. The erosion of our competitiveness is, as much as anything, driven by concerns from investors about their ability to complete projects here
While Ireland’s focus has been on our own election and the potential impact of the US election, Europe faces its own political turbulence. The German government has collapsed amid disputes over its struggling economic model. France, too, has endured months of instability, culminating in the collapse of the Michel Barnier-led government over its failure to pass austerity measures.
Smaller nations such as Ireland, under our new government, must now take greater responsibility in addressing Europe’s challenges. Europe cannot let the politics of other blocs distract from resolving the structural issues hindering its own growth and living standards.
The EU needs a shared purpose to bolster competitiveness. The recent EU Draghi Report highlighted high energy costs, excessive regulatory burdens and an incomplete single market as significant challenges. These are also pressing concerns for Ireland’s incoming government.
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Closer to home, if we are to be concerned about anything harming Ireland’s economic model, it should be the capacity constraints on critical infrastructure such as housing, water, the electricity grid and transportation. Too many investments are delayed in what the Draghi report identified as one of the slowest planning and judicial systems in Europe.
On top of this, we have some of the highest business electricity costs in the developed world, which makes industrial projects less attractive and also squeezes SME margins.
A 2024 report by Business Europe projects that wholesale electricity prices in Ireland in 2025 will be 38 per cent higher than in France and 13 per cent higher than in the UK in its most optimistic scenario. Ibec’s own recently published energy cost report shows that 50 per cent of energy bills are made up of non-fuel costs, such as transmission charges. These must be urgently addressed.
Ireland’s energy potential has been hindered by the absence of a comprehensive strategy aligning energy, climate and economic goals. The next government must prioritise closing this gap and focus on energy competitiveness. A new strategy should promote high-value industries leveraging the State’s vast renewable resources.
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For more than a year, Ireland has been experiencing a material slowdown in the foreign direct investment pipeline. In the first half of 2024, the number of jobs announced by IDA client companies was the weakest since 2014. But we cannot just blame geopolitical shifts for the challenges we face. This erosion of our competitiveness is, as much as anything, driven by concerns from investors about their ability to complete projects here. It is also important to consider that competitiveness is driven by both the cost of doing business and the productivity agenda, which encompasses infrastructure development as well as investments in talent, technology and R&D.
There is, however, clear potential for Ireland to compete in the years ahead based on a skilled and growing workforce, abundant energy potential and delivery of material improvements in our national infrastructure. Delivery on these agendas would be economically transformative for the State.
For companies with long-term investment horizons, Ireland will continue to offer a competitive and stable corporate tax regime compared to our competitors. The key to Ireland’s corporate tax competitiveness since the OECD base erosion and profit-shifting (Beps) process has not been our headline rate, but the fact that the regime is not at constant risk of change with the political cycle.
We are now at an inflection point where delivery on our vision for a growing, rich and energy-abundant island with infrastructure and quality of life to match is all about effectiveness. We have the financial resources and skills necessary to unlock our economic potential, arguably for the first time in the State’s history.
Business has identified the key measures to effectively reduce electricity costs, provide investment certainty, advance infrastructure, cut unnecessary regulatory costs and maintain competitiveness. As the programme for government negotiations continue, these issues must remain front and centre.
Danny McCoy is chief executive of Ibec
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