IFAC slams Budget

[Brendan Burgess]

https://www.fiscalcouncil.ie/wp-content/uploads/2026/10/Flash-Release-Budget-2027.pdf

Summary

Budget 2027 puts the public finances on a worse trajectory by repeatedly breaking established spending limits and increasingly relying on high -risk corporation tax .

• Ignoring the speed limit : Spending increases net of tax measures have run at a blistering pace in recent years. A sustainable speed limit of 5% for both was set in 2021. But governments have since budgeted for around 6% growth , before actually delivering about 10% a year on average , double the speed limit. Today’s figures suggest an increase of almost 9% in 2026 if overruns continue at their current pace .

• Spending risky taxes: The Government continues to use high -risk receipts to fund permanent tax and spending measures. It plans to spend about six-in-seven euros of all corporation tax revenues it takes in. Most of it is for current spending . Stripping out the excess corporation tax , the parts that look riskiest, the G overnment plans to run larger deficits, rising from € 12 billion in 2026 to € 20 billion in 2030. The Government will effectively have to borrow to put money into its long -term savings funds for ageing costs from next year.

• The Government should be saving more of these risky receipts : This would make its tax base more secure . It would ensure it covers future ageing pressures and weathers the next recession without the need for painful cutbacks or sharp tax increases.

 

[Sister Sara]

On the face it, it is hard to disagree with the basic points here and I would agree that 10% on year on average, double the speed limit, points to a level of mismanagement somewhere – either the forecasts 5yrs ago were way understated or the expectations ahead are way overstated.

Appreciating this publication is mostly an initial reaction the budget I do have two observations on how the IFAC appears to form its opinion.

First, is the ‘high-risk’ coporation tax. The IFAC has a tendency to form its outlook by somewhat crude approach that public finance should be measured and administered as if these corporation taxes were not here. This prudent sentiment is useful but it also negates the reality that these taxes are here. And if you were to gauge the sentiment of US corporations towards Ireland – continued expansion and investment for the foreseeable future (I think Zuckerberg has bought himself a castle somewhere?) all the headwinds point to a sustained and buoyant corporation tax receipts ahead for the future. The one negative headwind I’m aware of was in Ursula Von Der Leyen speech that the EU was fundamentally opposed to gold-plate companies and tax arrangements.

Secondly, IFAC states that pay has outpaced prices by 1/3 since 2014. Why 2014 was chosen as the benchmark it is not clear. Who remembers the price of nappies, toothpaste or red lemonade in 2014?

A more realistic time-frame would be the last 5yrs and from their own graph, 2021 to now, low-wages lag behind price increases and this would perhaps reflect the ‘cost of living crisis’ than some parts of society are undoubtedly enduring. (marked red).

The only reason I can think 2014 is chosen is to demonstrate how well the economy is if wages are increasing about prices, as they should do in a healthy productive economy.

But I don’t think that their graph shows that at all.

Rather, what it shows is that the gap between those who earn most and those who earn least continues to grow in monetary terms, albeit at a slower rate.

It doesn’t define low-wages, or high wages, but a simple example can show this.

Prices = 100 and remain constant from 2014 to 2026

Low wages = say, €100pw in 2014 and are now 34% higher - €134pw.

High wages = say, €200pw in 2014 and are now 24% higher - €248pw.

Low wages have increased by €34 pw, high wages have increased by €48pw.

As we do our shopping in €€’s and not %’s, the gap between low and high wages is increasing which may again be reflected in the 'cost of living crisis' in parts of society.

 

[Savvy]

This prudent sentiment is useful but it also negates the reality that these taxes are here.

If the money was used for one off spending I may not like it but if the money disappears it doesn't bring austerity.
Using it to support recurring spending is where I have the issue. It's all fine now while the money is there.

Perhaps corporation taxes continue growing from here eternally but after our experience 20 years ago and the sudden acceleration of these funds I would have expected a lot more prudence.

The Government will effectively have to borrow to put money into its long -term savings funds for ageing costs from next year.

Shocking that we are doing this with

The Government should be saving more of these risky receipts

Exactly, it reminds me of the difference between how Norway and the UK used the glut of oil money they earned over the last 50 years.
Today one has stagnant economy and 6% long term bond yields and the other has one of the largest sovereign wealth funds in the world.

 

[Purple]

Exactly, it reminds me of the difference between how Norway and the UK used the glut of oil money they earned over the last 50 years.

It is worth remembering that the UK was bankrupt from financing their role in two world wars and extracting itself from 300 years of colonial misadventure. We have no such excuses. We are where we are due to an economically illiterate electorate and a fiscally reckless Parliament which inevitably leads to a populist pro-cyclical government.

 

[C_Pike]

In the exchequer estimates they are now saying that corporation tax will come in below their estimate in the budget last year. This is the sort of a warning sign that could indicate the type of challenge we'll face if these taxes turn out to be cyclical or go away to some degree thanks to some change in global level agreements.

We will rue not putting the money into Norwegian style funds - 2/3 of the Norwegian fund today comes from gains rather than contributions. Sub 3% drawdown annually covers over a quarter of government spending.

Patience and sensible decisions vs what we have. We'd need immediate austerity in the event of a CT shock, and we control basically none of the economic levers to be able to predict or control what CT outturn will be (unlike, say, the ability to extend USC to every single worker in the morning, ala the 2009-2014 budgets)

 

[Brendan Burgess]

Séamus Coffey, the Chair of IFAC, made a good point on Morning Ireland today.

The Budgets are wrong and they will be overshot significantly.

For example, there was nothing in the Budget for 2026 for the double social welfare payment at Xmas, but they are going to pay it anyway. He said it shouldn't have come as a shock to the Minister last year that there was going to be a Xmas in 2026.

Likewise, there is nothing in the most recent announcement for next year.

 

[Sister Sara]

Perhaps corporation taxes continue growing from here eternally but after our experience 20 years ago and the sudden acceleration of these funds I would have expected a lot more prudence.

I'm not disputing this, only questioning why the IFAC keep honing in on these 'risky' corporation tax receipts? The risk is always there, but the indicators are for the foreseeable future that the risk is on the low-side of things.

If some tumultuous occurrence happens that see's these tax receipts disappear then its quite probable that VAT, Income tax receipts, PRSI contributions will also take a hit.
Alternatively, if fuel prices keep rising it could dampen tourism trade, or a virus hits the cattle stock and make food prices and deliveries go higher, and it could be these 'excess' corporation tax receipts that plug the gap in the public finances.

In other words, budgeting some be done on the information that is readily and reliably available and not on the "what-if" scenario.

I think we had a National Pension Reserve Fund at one point that was a form of a strategic wealth fund to cover pension liabilities? Until one day it was used for something else and we didn't have it any longer.

 

[Sister Sara]

For example, there was nothing in the Budget for 2026 for the double social welfare payment at Xmas, but they are going to pay it anyway. He said it shouldn't have come as a shock to the Minister last year that there was going to be a Xmas in 2026.

I think that is fair and reasonable criticism, however it is not possible to itemise every expenditure with a definitive sum. If DSP allocates €xx million to Jobseekers and because of robust employment levels it is overstated, it wouldnt be unusual to allocate excess finances in one budget head to pay for another budget head.

 

[ClubMan]

Alarming truth about Budget 2027 buried in detail

On the surface, the public finances look healthy with unemployment low and the economy purring along nicely, but the alarming truth about the Budget is buried in the detail, writes David Murphy.

www.rte.ie

 

[Sister Sara]

I don't know the tax rules that govern this system but it's been on on-going issue for a long-time now. I can only assume that whatever is occurring is that it is within the rules of international trade and the arrangement suits the US corporation profits, Irelands tax-take and Polish employment figures?

I can agree with the point of how these taxes should be spent/saved etc, I cannot agree with the commentary that says "If these transient corporation tax receipts are stripped out of the public finances....".

Strip VAT, or Income Tax out of the public finances (or reduce significantly by equal sum of US CT Tax), same issue.

 

[losttheplot]

Think of the CT as a bonus to your salary, you may have got it for the last 10 years and now you assume you'll always get it so your living expenses have expanded based on it. If it disappears, you're in trouble.

CT can be moved probably by singing a few legal docs and a few mouse clicks. A few billion in profits in Ireland can easily be moved to Latvia. Other tax sources aren't so easy to move.

 

[Firefly]

Think of the CT as a bonus to your salary, you may have got it for the last 10 years and now you assume you'll always get it so your living expenses have expanded based on it. If it disappears, you're in trouble.

A super analogy!

 

[Sister Sara]

you may have got it for the last 10 years and now you assume you'll always get it so your living expenses have expanded based on it. If it disappears, you're in trouble.

I understand the sentiment but I don't think this is what is happening here at all.

Any cursory search into what US corporations are doing here suggests that their intention is to stay here and expand for a considerable amount of time, maybe 10yrs+. The levels of investment are significant.

Of course something awful unforseen could happen that derails this foreign investment but that could be said of any other part of the economy as well.
E.g - River Shannon, river Lee, could burst their banks and render thousands of homes and businesses destroyed!
Should we strip out the lost income tax, VAT, CT etc if that occurs and budget accordingly?

You should only budget on the what information is readily, reasonably and reliably expected.

How government should use these tax receipts is another argument with plenty of valid inputs in that regard.

In the short to medium term there are no indications suggesting public finances will be stripped of these receipts to the scale the IFAC and some other commentators are suggesting. On the contrary, there is reasonable information that such receipts will continue, in varying amounts, for a considerable period to come.

 

[losttheplot]

Any cursory search into what US corporations are doing here suggests that their intention is to stay here and expand for a considerable amount of time, maybe 10yrs+. The levels of investment are significant.

I think the problem is the investment and the CT aren't necessarily linked. The CT is paid where the profits are recorded. The company and manufacturing and the jobs wouldn't have to go anywhere, just where they decide to post the profit.
Product could be made here, exported to a distribution centre in Poland who then sell to the world. At the momnent, the Irish company makes the profit. Could simply be change that the Irish company sells at cost to the Polish one, and the Polish one records the profit.

 

[Sister Sara]

Could simply be change that the Irish company sells at cost to the Polish one, and the Polish one records the profit.

Yes, I understand that, but I'm suggesting that in Government, IDA, US Chamber of Commerce, etc, those that would be closer to the ground in how these companies operate and how their profits are managed suggest that this is not on the horizon anytime soon.

That sounds like to me that an Irish subsidary of a US company would be effectively telling its US HQ to upsticks and move lock, stock and barrel to Poland. That may be for reasons of capacity or other, but the indicators are that US FDI are investing heavily in Irish operations and the current arrangements for booking corporation tax receipts in Ireland is intended to continue for sometime yet.

That is just my understanding of what is occurring. I could be wrong, but because this is an issue that I understand is within the rules of EU/International trade, then until those rules are changed its carry-on as you are.

 

[Fortune]

Until one day it was used for something else and we didn't have it any longer.

Wasn't it used to fund a reduction on hospitality vat?

 

[losttheplot]

That sounds like to me that an Irish subsidary of a US company would be effectively telling its US HQ to upsticks and move lock, stock and barrel to Poland.

The only thing to move would be the profits. As long as the productivity is there, the jobs would stay. Where the profits are recorded is just accountancy. If another EU country had a more favourable tax regime, the profits would move there. It wouldn't take long. Literally, the CT would disappear overnight.

but the indicators are that US FDI are investing heavily in Irish operations and the current arrangements for booking corporation tax receipts in Ireland is intended to continue for sometime yet.

The investment in Irish Operations isn't linked to where the profits a recorded.
I think the US profits stay here because of the tax in the US. If that changes, the profits would go there, and there's no way to predict what decision could come from the current US administration.

This is the type of thing they used to do (paywalled but the first paragraph gives you the idea).

Tax-inversion companies lobby hard to maintain advantage - The Currency

Between 2012 and 2016, the equipment manufacturers Eaton Corporation and Johnson Controls International, and the medical devices maker Medtronic, each changed the domicile of their New-York listed parent from the US to Ireland. They acquired Irish-resident companies that became home to their...

thecurrency.news

 

[Sister Sara]

If another EU country had a more favourable tax regime, the profits would move there. It wouldn't take long. Literally, the CT would disappear overnight.

I appreciate that is what could happen, but for some reason EU countries with more favourable CT regimes than Ireland, it does not?

Source: Trading economics - List of Countries by Corporate Tax Rate,Europe

Hungary 9% CT rate
Bulgaria 10%
Ireland 12.5%

There has to be other factors other than signing a few legal contracts and disappearing revenue worth billions from a relatively small trading nation, overnight?

Would good governance have anything to do with it? A stable political environment, pro-business friendly tax laws, established relationships (now generational), trust - our government travelled to Apple HQ in US to basically affirm that Ireland would fight the legal fight against the EU over their tax liability.

I think it may, and in no insignificant part either.

US FDI in many, maybe most, instances have invested huge financial capital in establishing their EU hq's in Ireland over a number of decades now. They have built high-tech, high-quality produce that is simply not transferable overnight as a pop-up alternative.
It is serviced by a high-skilled workforce that arguably may be available elsewhere in EU for cheaper labour cost, but what cost on goodwill, political stability, generational influence, decades of trust?

Corporations will always assess and outweigh the pro's and cons as is essential for surviving in a capitalist system. Going by what those corporations are actually doing it would appear to me that they have no intention on turning their back on Ireland nor shafting Ireland current arrangements for tax bookings. That would take a change in the rules at EU (or US) level and that could be years, maybe decades away, if at all.

Business is business. Good business is established on trust. US FDI has been good for Ireland but my perception is that Ireland has been very good to US FDI.

Until there is evidential, reliable and reasonable evidence to the contrary then I think, respectfully, the IFAC and David Murphy, are barking up the wrong tree.