The Central Bank Governor has said it would be prudent for the Government to assume that some fraction of the recent surge in corporation tax revenues may be temporary in nature.
In a letter to the Finance Minister ahead of next month's Budget, Professor Philip Lane said that the volatility of the Irish economy does not make it easy to calculate the underlying sustainable path for tax revenues.
Professor Lane also said that while the low interest rate environment may currently limit debt servicing costs, interest rates will eventually normalise.
The Central Bank Governor said that budgetary decisions should be embedded in a long-term strategy that recognises the implications of an ageing population for expenditure on pensions and healthcare.
Today's letter also notes that it is essential to maintain a prudent fiscal strategy and that the establishment of long-term targets to act as an anchor for annual budgetary decisions would be beneficial.
It further notes that, while the European fiscal framework prescribes a target ceiling for the stock of public debt, there are compelling reasons to develop a separate national target.
Professor Lane also said that there are "compelling reasons" to develop a lower national target for Ireland's stock of public debt in addition to EU rules that say states should keep the ratio of debt to gross domestic product at 60% or less.
"The volatile nature of the Irish macro-financial system and the history of crises suggests a debt target that should be materially below the appropriate level for a larger, more stable economy," Philip Lane wrote in the letter.
"The well-known interpretation issues with measured GDP for Ireland makes it obvious that standard fiscal indicators (expressed as ratios of GDP) need to be supplemented with locally-developed targets that are robust to statistical issues," he added.
In a statement, the Central Bank said the Governor's letter to the Minister for Finance ahead of the Budget will now be published every year.
It said this will promote transparency and will provide visibility for members of the Oireachtas and the wider public of the Central Bank's view on various pre-Budget issues.