The Irish exchequer is set to become one of the wealthiest in Europe with Finance Minister Michael McGrath confirming record levels of tax revenues. The economy, driven by exports, has weathered the pandemic, cost-of-living crisis, and other global economic storms, putting it in remarkable shape. The question now is whether the coalition will resist the temptation to spend big and cut taxes before the next election.
The latest economic projections from the Finance Minister show that the Irish economy will be the fastest-growing in Europe, with a budget surplus of €4.4bn next year, even after stripping out the “windfall” tax revenues. The forecasts, prepared for the Brussels budgetary oversight, have been conservative in the past, meaning the surplus could be worth billions of euros more. However, experts warn that the election cycle has increased the temptation to spend unwisely.
Kieran McQuinn, research professor at the Economic and Social Reserve Institute, said that the government now has the resources to tackle the deep scars, including housing and the spending demands entailed by climate change. However, an economy growing “at full tilt” demands wise spending decisions. Cutting income taxes, in particular, at the present time would fuel inflationary pressures, the professor said.
Economist Austin Hughes said that budget surpluses raise the danger that the huge resources “will be frittered” in the absence of urgent plans over how best to spend the money over the next five years. He added that getting the maximum benefit from the massive revenues to tackle the “really immediate economic, political, and social problems” is the pressing issue. Neil McDonnell, chief executive of business group Isme, said that giving in to temptation would lead to wasteful spending and cited the huge needs for the government to prepare to fund social and retirement spending.
Economist Jim Power said that the election cycle will present an obvious temptation. “I do not believe that it is a priority to make significant cuts in taxation at this juncture,” Mr Power said. “The only priority that the electorate could possibly reward the government for is housing,” he said, which “by far is the biggest challenge to our economic wellbeing and to our social wellbeing.”
In conclusion, while the Irish economy is in a good position, it is essential that the government makes wise spending decisions. Experts warn against cutting income taxes, which could fuel inflationary pressures, and instead suggest that the government focuses on tackling the immediate economic, political, and social problems, such as housing and climate change. The election cycle presents a temptation to spend unwisely, but it is crucial that the government does not fritter away the surplus and instead uses it to benefit the country’s overall economic and social wellbeing.