Growth returns to the Irish economy

The Republic of Ireland’s domestic economy showed signs of growth in the first quarter of 2024, with output expanding by 1.4% compared to the previous quarter. This growth was measured by Modified Domestic Demand (MDD) data, indicating a positive trend in the country’s economic performance.

In addition to the economic growth, Ireland’s state finances received a boost from a significant increase in corporation tax income. In May, there was a 30% year-on-year increase in corporation tax revenue, totaling 3.6 billion euros. This increase reversed a previous slowdown in tax income earlier in the year.

One of the reasons for this tax windfall is the reforms to tax rules that require major international companies to pay a significant portion of their global taxes in Ireland. This has put Ireland in a unique position where it can generate budget surpluses from these tax revenues.

Minister for Finance, Michael McGrath, acknowledged the recovery in corporate tax revenues but also highlighted the volatility of these revenues. He emphasized that it is not prudent to rely solely on these receipts for future budget planning. The government is in the process of establishing a sovereign wealth fund using a portion of the tax windfall.

The Irish Fiscal Advisory Council (Ifac) cautioned against aggressive tax cuts and spending increases in the upcoming budget. It warned that such measures could overheat the economy, which is already at or above capacity. The council pointed out the tight job market, high employment levels, and lingering inflation as potential risks to the economy that need to be considered in budget planning. Minister McGrath is expected to outline the tax and spending parameters for the next budget in the coming weeks.