IFAC: Underlying budget deficit: almost €10billion

Brendan Burgess

Brendan Burgess

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www.rte.ie

Watchdog warns of underlying deficit in public finances

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.
www.rte.ie www.rte.ie

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.

So the Central Bank, The Fiscal Advisory Council and the ESRI have all warned about this deficit.
 
Here is my overall summary of the state of play before the Budget from

www.gov.ie

White Paper - Estimates of Receipts and Expenditure for the year ending 31 December 2026

www.gov.ie www.gov.ie

Receipts: €114 billion
Expenditure - excluding contribution to Pension Reserve Fund : €106 billion
Surplus €8 billion


Table 2 shows the following

Underlying Deficit of Revenue over Expenditure: - €10 billion
Add windfall Corporation Tax Receipts: €19 billion
Deficit after Windfalls: € 9 billion

So the CT windfall is paying for 17% of every euro spent by the government.
 
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This is what IFAC said on transparency of White Paper:

The White Paper itself could vastly improve transparency by focusing on general government, rather than the narrower Exchequer. It could also improve transparency by showing gross rather than net spending to allow forecast comparisons.
 
Corporation Tax will be about 31% of total revenue. Was stamp duty even anywhere near that at the height of it? I think it's nearly twice as big a concentration.
 
Here is the comment IFAC made

1/4 This morning, the Government released its “White Paper” ahead of Budget 2026.
The White Paper is routinely published the weekend before Budget Day. It gives a
glimpse of tax and spending forecasts before the impacts of next Tuesday’s Budget
measures are incorporated.
2/4 Projected taxes have been revised up for 2026. In particular, forecasts of corporation
tax in 2026 have been revised up by €3.8 billion from what was projected in last year’s
budget. This likely reflects a more realistic assumption around the impact of BEPS
reforms.
3/4 The White Paper suggests large and growing underlying deficits in 2025 and 2026.
Excluding excess corporation tax, the White Paper estimates a deficit of almost €10
billion next year. This is before any new budgetary measures are introduced.

1759752859779.webp


4/4 The White Paper itself could vastly improve transparency by focusing on general
government, rather than the narrower Exchequer. It could also improve transparency by
showing gross rather than net spending to allow forecast comparisons.
 
Dr Strangelove said:
But how on earth can a “windfall” last for a decade?
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Because it's highly dependent on the global revenues of US multinationals which so far haven't hit a recession in last decade.
The magic accounting trick of moving intellectual property to Ireland which started in 2015. If Trump comes up with another accounting trick to return it back to US and A.
 
Brendan Burgess said:
Projected taxes have been revised up for 2026. In particular, forecasts of corporation
tax in 2026 have been revised up by €3.8 billion from what was projected in last year’s
budget. This likely reflects a more realistic assumption around the impact of BEPS
reforms.
Click to expand...

Yes BEPS & global minimum....but also the other little corporation tax 'secret' we have which along with the corporate profits of the Mag7 growing explains the almost miraculous and consistent YoY increases in CT collected these last few years........and that is the roll off of the acquisition of intangible asset relief program which we provided to multinationals to allow them to move their IP from 0% tax jurisdictions to here when tax havens became un-defendable and unsustainable under BEPS but also the court of public opinion...this was an 8yr amortization relief at 100% and became effective Jan 1st 2015.....starting c.2023 these, of their time, reliefs are expiring as they we're amortized on the Irish subsidiaries books exposing those subs profits to full 12.5% CT on profits rising now to 15%.....the 2015 - 2019 period saw an immense amount of on-shoring of IP using this structure a kind of peak relief period.......now that has continued albeit with an 80% cap since c.2018...so to be fair to revenue there is something of a buffer underpinning CT which is to say there are always newer companies operating here who are availing of this relief and who in time will become full bore CT payers....but the big moves up from the really large groups will be exhausted in the next 12-24 months IMO.....and our CT take will more closely mirror the underlying corporate profit growth of the SPY/QQQ subs operating here....still good just not quite as good as we've had it these last few years.

Finally when I hear about Government 'surpluses' - one should always think about those surpluses in the context of the infrastructural deficits we have relative to our population (transport, health, housing, water, waste water & electricity etc.).....like many household its possible to manufacture an annual budgetary surplus by foregoing what one might call maintenance capex....not maintaining your car, deferring repairs to your home etc etc...budgetary surpluses are possible if one doesn't maintain their assets......IMO these Irish Gov surpluses are just that, they are really a manifestation of under investment in required capital projects.....the scary thing is that deferred capital investment showing up as surpluses means a good portion of this actual under investment gets cobbled up by the state bureaucracy which politicians find hard to keep at bay with their begging bowls when the budget is in "surplus" like it has been.....so IMO its a double crime your not doing needed capital projects and the quality of life of your population suffers....and in turn you get the expansion of the state bureaucracy above beyond what would have been the case had their not been a surplus burning a hole in the pockets of the Minister of Finance.....these one time capital euros that dont get spent get diverted to annual staffing commitments in various departments and quangos with very very very questionable marginal outcomes.
 
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I think IFAC should resign en masse as a protest, what is the point of all that work preparing reports if Govt rescklessly ignores them? There is a bit of deja vu here in comparison to the lead in to the 2008 crash. Everything back then was honky-dory.... until it wasn't
 
jfrank said:
I think IFAC should resign en masse as a protest, what is the point of all that work preparing reports if Govt rescklessly ignores them? There is a bit of deja vu here in comparison to the lead in to the 2008 crash. Everything back then was honky-dory.... until it wasn't
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Not sure the general public would pay any attention.

I think that IFAC might help on the margins right now, but if there was a crash I would suspect their steady history of warnings would be used to beat the government, and in return their influence on policymaking would be significant during the turnaround years. Maybe...
 
C_Pike said:
I think that IFAC might help on the margins right now, but if there was a crash I would suspect their steady history of warnings would be used to beat the government, and in return their influence on policymaking would be significant during the turnaround years. Maybe...
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Quite probably this would be the case, but like the last crash (which didn't have the pronouncements of the IFAC to beat the Government with), the learnings will only last as long as politicians get held to account for it. Is there any political party currently seeking to stay within budgetary limits? Opposition parties can 'have regard to' IFAC reports but I don't get the sense that they would be wholly influenced by their findings either.
 
rob oyle said:
Quite probably this would be the case, but like the last crash (which didn't have the pronouncements of the IFAC to beat the Government with), the learnings will only last as long as politicians get held to account for it. Is there any political party currently seeking to stay within budgetary limits? Opposition parties can 'have regard to' IFAC reports but I don't get the sense that they would be wholly influenced by their findings either.
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Most of the hardest lessons learned went into financial regulation, and have stuck.

In any case I think fiscal watchdog > no fiscal watchdog. Things could always be worse without them.
 
Can't recall who came up with it (NAMA Wine Lake?) but the Govt thinks IFAC stands for I (couldn't give a) FAC
 
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