Ireland Forecasts €8.6 Billion Budget Surplus for 2024 Amid Record Corporate Tax Receipts

Ireland is set to deliver a budget surplus of €8.6 billion, or 2.8% of national income, in 2024, according to the Department of Finance. This surplus will allow the government to invest most of the excess cash in a new wealth fund. The department also forecasts a surplus of €9.7 billion, or 3% of modified gross national income, for 2025, with similar surpluses expected in the following two years.

The government plans to transfer €4 billion of this year's surplus to the wealth fund and €2 billion to a smaller infrastructure and climate fund. Ireland is one of the few European economies running budget surpluses, primarily due to a surge in corporate tax paid by its large hub of foreign multinationals. The department expects inflation to average 2.1% in 2024 and the domestic economy to expand by 1.9% that year.

Why this matters: Ireland's strong fiscal position, driven by windfall corporate tax receipts, allows the government to invest in long-term wealth and infrastructure funds. However, the reliance on volatile corporate tax revenue raises questions about the sustainability of these surpluses in the face of potential economic headwinds.

Finance Minister Michael McGrath cautioned that the surplus is heavily dependent on volatile 'windfall' corporate tax receipts, which have grown significantly in the past decade. When the windfall element of these corporate tax receipts, estimated at around €11 billion, is excluded, there is an underlying deficit in public finances. McGrath warned that corporate tax receipts "cannot be relied upon" and pointed to a "marked slowdown" and "volatility" in corporation tax over the course of last year.

Leading economists have warned Finance Minister Michael McGrath against cutting taxes, as the economy is already expanding at a healthy rate. The government should focus on spending the surplus on important infrastructure projects, such as housing and healthcare, rather than unnecessary tax cuts. The finance minister has insisted the government is not thinking about the budget at this stage and will defer any decisions until new economic projections become available this summer.

Ireland is forecasting cumulative surpluses of €38 billion over the next four years through 2027. However, the government acknowledges that the era of corporation tax over-performance is coming to an end, and the economy has faced headwinds such as high inflation and monetary tightening. The domestic economy is projected to grow by 1.9% in 2023 and 2.4% in 2025, with the labor market remaining resilient despite the economic challenges.

Key Takeaways

• Ireland to deliver €8.6B budget surplus in 2024, 2.8% of national income
• Surplus to fund new wealth fund and infrastructure/climate fund
• Surplus driven by surge in corporate tax paid by foreign multinationals
• Economists warn against tax cuts, urge spending on infrastructure
• Ireland forecasts €38B in cumulative surpluses through 2027, but warns of corporate tax volatility