Spending budget surplus calls for imagination

Finance Minister Michael McGrath has warned of the need to be careful. Photo: Gareth Chaney/Collins


The Government is busy attempting to manage public expectations as it predicts an exchequer surplus of €10bn this year and over €16bn next year.

But when national income exceeds expenditures to such an extent, people have every right to expect that the surplus be used to good effect, for the short, medium and long term. The robust health of the economy is largely based on extraordinary corporate tax receipts, an income source which is unlikely to continue indefinitely.

The introduction of a new global corporate tax rate of 15pc is predicted to hit Ireland’s income from this source — but perhaps not to the extent some have warned about, and with careful planning now the hit when it comes need not be as dramatic as some suggest. It is also worth noting that the International Monetary Fund recently predicted Ireland was set to run multi-billion euro budget surpluses for the next five years.

This will lead to demands for immediate spending to alleviate the concerns of the opposition and numerous interest groups. The Government will want to avoid making permanent changes that recur every year on the back of corporate taxes that could prove temporary — and it would be wise to adhere to that view.

In this regard, the Government’s own worst enemy will be itself and the electoral cycle, as has often been the case in the past. With the economy expected to remain strong for at least another half decade, and maybe longer, the Government must plan now for the medium and longer-term future.

It is important to ensure Ireland continues to be an attractive location for mobile investment to maintain both the corporate tax and associated employment taxes. The Government has been urged by the Irish Fiscal Advisory Council (IFAC), the budgetary watchdog, to take steps now to ensure state and public sector pensions are funded into the future. Otherwise tensions will arise when a smaller, younger, working population has to pay more to fund a larger retired population, it warns.

There is merit in the IFAC advice — not least for necessary social cohesion. Younger generations already question the value of a social contract which sees many of them materially worse off than their parents.

However, the Government also needs to think more broadly. Good quality public services are a critical factor in attracting investment.

The availability of high-quality housing, education, health services and public infrastructure are important for more than just the absolute value of social cohesion for those who live here. Good services also attract talented workers and multinational groups the country will continue to need.

As a small trading economy, foreign direct investment will remain a central part of Ireland’s industrial policy. So making the country an attractive place to live and work must be a clear priority for this and future governments.

The finance minister last week said: “There is an acute need to be careful, because if we get it wrong, it will come at a high cost to people down the line, and I’m not going to be the minister that signs up for that.”

This is reassuring, insofar as it goes. But there is also a requirement to show imagination too, because decisions taken by the Government now will need to have valuable consequences well into the future.