Despite soaring taxes flowing into the Government's coffers from US multinationals, the State’s fiscal watchdog says the proportion of the windfall revenues being set aside by the Cabinet is falling.
In a stark warning the Irish Fiscal Advisory Council says the share of corporation tax which is being saved will drop from 32% this year to 15% in 2026.
The Council’s chairman Seamus Coffey says "The Government plans to run a smaller surplus next year."
The watchdog warns spending is set to grow by over 11% in 2025 which it described as "much faster" than was sustainable.
It also said that expenditure was rising quicker than tax revenue, leading to an underlying deficit of €7 billion this year deteriorating to €14 billion next year, when volatile corporation tax receipts are excluded.
The taxes paid by a small number of large US multinationals are seen as a highly unreliable source of revenue but are being used to sustain day-to-day spending.
The watchdog is also highly critical of the Government’s track record on adhering to expenditure limits announced on Budget Day.
The Fiscal Council said: "Spending forecasts have been repeatedly revised up."
It said expenditure in 2025 will be €12.5 billion more than the €96.6 billion set out in the Budget in 2024.
It said the previous government published limits on growth in spending to 5.1% for this year and 6.5% for next year.
But spending is now expected to be 8.6% and 7.7% respectively.
It has called on the Coalition to introduce a national rule to guide spending growth and update its medium-term plan to the European Commission which it had promised to do by the summer.
The Fiscal Council says Ireland faces "significant and predictable" budgetary pressures arising from supporting an ageing population and addressing climate change.
It says these costs amount to 6% of national income by 2050 or €20 billion in today’s terms.
The adds that "now is the time to prepare for these challenges, while the economy is strong."
