Irish politicians have presented a generous new budget this afternoon, despite concerns about inflation risks and fiscal security.
Ireland’s Minister for Finance and Minister for Public Expenditure outlined the national budget for 2025 on Tuesday afternoon, presenting financial plans for the year ahead.
“Progressivity, fairness and catalysing real opportunity for the future … have been central to how Budget 2025 has been designed,” said Finance Minister Jack Chambers.
With an election on the cards before March next year, the government sought to appeal to voters with a raft of giveaways.
Reductions in income tax have been promised, while the state will increase the minimum wage by 80 cents from 1 January.
In another crowd-pleasing move, the minimum inheritance tax threshold will be raised, meaning larger bequests can be given tax-free.
A reduced rate of VAT for gas and electricity will also be extended.
“As expected, the Budget brought a considerable package of spending increases and tax cuts, in an attempt to please a large proportion of the electorate as Ireland heads to polls soon,” said Ricardo Amaro, lead economist at Oxford Economics.
“The economy is in good health and a tight labour market suggests that this level of stimulus is excessive,” he continued.
“Domestic-generated inflation has proven stickier [compared to imported inflation] and needs to be closely-watched, with today’s Budget reinforcing upside risks in this area.”
Calls for fiscal restraint
Ahead of Tuesday’s announcement, economists had warned politicians not to be overly lax with the nation’s purse strings.
The Irish Fiscal Advisory Council (IFAC) notably argued that although Ireland seems to have a healthy spending margin, inflationary risks could resurge above the 2% target.
If more money is injected into the economy, increased demand for goods and services could push up prices.
According to projections given by Minister Chambers, Ireland is set to see a budget surplus of 7.5% of national income in 2024 – equating to €23.7bn.
That’s up from an earlier 2.8% forecast, mainly thanks to a windfall tax due from Apple.
Last month, a ruling from the European Court of Justice demanded that the Irish government collect €13bn in taxes back from the tech giant, stating that Apple had benefited from illegally low levies.
Although this will provide a boost for the state coffers, the revenue is one-off and therefore not a stable source of income.
This fact, alongside inflationary risks, provides an argument for restrained spending.
“We know that our public finances are heavily reliant on corporation tax, much of which is ‘windfall’ in nature and not linked to our domestic economy,” said Chambers on Tuesday – arguing that economic restraint had been factored into government decisions.
“Much of our income tax receipts are linked with this highly concentrated revenue stream. As I have said many times before, we must not use these potentially transient receipts to fund permanent expenditure measures.”
This message was reiterated by Minister for Public Expenditure Paschal Donohoe, who spoke after Chambers.
According to the budget plans, a chunk of Ireland’s increased tax revenue will contribute to resilience cushions, specifically the Future Ireland Fund and the Infrastructure, Climate, and Nature Fund.
“[A budget surplus] allows for flexibility and gives us a far better chance of being able to deal with the risks that we do not see coming,” said Donohoe.
Other priorities for investment
The ministers on Tuesday also outlined the importance of investing in public infrastructure to tackle long-standing structural flaws in Ireland.
Energy, water, and housing were identified as areas for improvement, along with health care.
An additional sum of €2.7bn will be given to the health sector over two years, and 495 new beds will be introduced in hospital and community services.
More money will equally be put towards supplying new homes in Ireland, and supporting affordable housing schemes.
Many in Ireland are struggling to afford accommodation as complex planning regulations and a lack of supply have sent prices soaring.
“Measures providing more funding for selected households to buy houses will just bid up house prices,” warned John D. FitzGerald, professor in economics at Trinity College Dublin.
“What is needed is a medium term strategy, developing the investment capacity of the economy so that the necessary major investment in infrastructure can be undertaken over the period to 2030,” he told Euronews Business.
“It is not possible to ramp up such investment rapidly. It would have been much more effective if the budget was combined with other measures to facilitate investment, in particular a rapid change in the planning system.”
In many ways, the task of devising next year’s budget has been made easier for the Irish government because of the country’s robust economic health.
On the flip side, ministers are somewhat stuck between a rock and a hard place, balancing expectations of generosity while economists call for caution.
