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Watchdog warns of underlying deficit in public finances

The Department of Finance has published a 'White Paper' which estimated taxes and spending in advance of the Budget
The Department of Finance has published a 'White Paper' which estimated taxes and spending in advance of the Budget

The State's fiscal watchdog has warned that latest figures show the underlying deficit in the public finances, when volatile taxes paid by multinationals are excluded, will be larger than expected.

Last night, the Department of Finance published a 'White Paper' which estimated taxes and spending in advance of the Budget.

The Irish Fiscal Advisory Council said today the document showed there would be "large and growing underlying deficits in 2025 and 2026."

It added: "Excluding excess corporation tax, the White Paper estimates a deficit of almost €10 billion next year."

This compares to a previous estimate of €7 billion.

The projection is before the impact of next week's Budget is taken into account.

Economists have become increasingly concerned that the State is becoming over-reliant on volatile corporation taxes paid by multinationals.

Although the Government is running a surplus, when these windfall taxes are excluded, there is an underlying deficit.

The Department of Finance has increased its estimate for how much corporation tax would be collected next year by €3.8 billion.

Yesterday, Minister for Finance Paschal Donohoe said tax bands would remain unchanged in the Budget, meaning that some workers will face paying more tax as rising wages push more of their earnings into the higher 40% tax band.

The Government is expected to unveil a range of VAT reductions on Tuesday including a significant boost for the hospitality industry which will eat into the scope for other tax cuts.

Mr Donohoe said adding a personal tax package would make the tax cuts too large and risk undermining the public finances.

The development has been criticised by Sinn Féin's finance spokesman Pearse Doherty who said Fianna Fáil and Fine Gael had "broken their promises" made in the election to index tax bands.