BUDGET 2025

A PRE-ELECTION BUDGET THAT WILL SPEND A LOT

Ahead of Budget 2025 on October 1^st, there will be one further set of published monthly Exchequer returns relating to the end of August. On budget day, the returns for the end of September will not be in the public domain, but presumably the bulk of the September performance will be available to the Department of Finance and will have some impact on the contents of the budget. In any event, as far as tax revenues are concerned now and indeed for some time past, the trend is your friend. On Tuesday last we got the returns for the end of July, and they still provide considerable comfort to a government preparing a pre-election budget.

For the first seven months, the total tax take at €52.3 billion is running 9.5 per cent or €4.5 billion ahead of last year. Income tax accounted for 37.5 per cent of the total tax take and is running 7.4 per cent or €1.4 billion ahead of last year; VAT accounted for 27.2 per cent of the total tax take and is running 6.9 per cent or €919 million ahead of last year; and corporation tax accounted for 23.9 per cent of the total take and is running €1.7 billion or 15.3 per cent ahead of last year. In total, Income tax, VAT and corporation tax accounted for 88.6 per cent of the total tax take, and all three are still performing strongly.

On the other hand, while revenues are growing strongly, so is expenditure. Gross voted current expenditure is running 9.5 per cent ahead of last year, and gross voted capital expenditure is running 57.3 per cent ahead. The latter is positive provided the money is being spent productively (cannot be taken for granted), but the growth in current spending must be a source of concern.

Income tax and VAT are to a certain extent dependent on what is happening in the domestic economy and are strongly driven by the labour market and consumer spending. We have some control over the drivers of these variables, but corporation tax is a different matter. The Tax Strategy Group papers published by the Department of Finance last month showed just how dependent the corporation tax take is on a small number of multi-national companies, and indeed the same can be said for a large chunk of income tax emanating from employees in the well-paid multi-national sector.

Irish policy makers need to take a very strategic approach to the vulnerabilities posed by the multi-national sector. These vulnerabilities were highlighted in stark fashion in recent days by the operator of the electricity network, Eirgrid. It warned about the danger of a mass exodus of data centres, particularly if a few large players decided to exit due to concerns about the reliability of power supply, which is essential for data centres, which in turn are an important component of many multi-national activities here. It suggested that Ireland needs a credible transition plan, not a shutdown. A safe, secure and reliable source of electricity is essential, and this requires considerable investment and planning. While there are many critics of data centres in Ireland, the reality is that they are an integral elements of some MNC operations here.

When one is so heavily dependent on a small number of multi-national companies there is always the risk that if any of those companies were to get into trouble, one could be very exposed.

The anti-trust ruling against Google, which is based on its exclusive arrangements with browsers and devices in relation to its search engine, is a key issue for Google, but also for Apple. Apple executives testified in defence of its arrangement with Google. We now await the next move from the Department of Justice.

The global chip war is also worth watching from an Irish perspective. An international analyst recently warned of the danger of Intel going the way of Nokia. This seems a long shot now, but the company is under considerable pressures from chip rivals and strategic errors in recent years.

We could go on, but I guess the main message is that there are always vulnerabilities and threats out there, and policy makers should have a risk register, and engage in strategic actions and long-term planning to mitigate the big risks. It goes without saying that careful management of the public finances is an imperative. The likelihood of another cost-of-living package in Q4 this year is not reassuring. There are reasons to be on alert, if not exactly overly concerned, but this could change very quickly.