Former NTMA chief Michael Somers has warned of “gradually rising” costs to service the €232.3 billion national debt, saying borrowing on that scale would have crippled the State if it was not in the single currency.
“Any new borrowing and refinancing of existing borrowing will be gradually rising rate but the rates are still incredibly low,” said Dr Somers, who was chief executive of the National Treasury Management Agency for 19 years until his 2009 retirement.
“Only for the euro we would be bust at this stage because our rates would be inflation plus a few percentage points [otherwise]. There’s a lot of unrealistic expectations around because of where we are.”
The annual inflation rate in November was 8.9 per cent, more than three times greater than the 2.7 per cent yield on the Irish 10-year bonds on Friday.
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Although the Irish borrowing costs rose last week as the European Central Bank increased interest rates for the fourth time in six months, Dr Somers said the spread over equivalent German costs remained relatively low.
When the Irish 10-year yield advanced to 2.6 per cent on Thursday, it was still less than 0.7 percentage points over German yields. “And we are nowhere near the triple-A credit rating we used to have. Lucky we are in the euro,” Dr Somers said.
He was speaking to The Irish Times after addressing the Ireland-US Council trade promotion group, saying the State’s dependence on corporation tax revenues left it vulnerable to shock.
Cumulative corporation tax receipts reached €21.1 billion in January-November, €7.6 billion ahead of the same 11-month period last year.
Such taxes have overtaken VAT to become the State’s second-largest source of Government revenue this year but are highly concentrated on a small group of very large taxpayers. Revenue data show 10 companies paid 53 per cent of all receipts in 2021.
“In the absence of the surge in corporation profits tax this year, we would be running a substantial deficit on the budget. Instead we will have a surplus of some billions. We have no guarantee that this will continue,” Dr Somers said.
“We have enjoyed standards of living which have been boosted by the revenues of multinationals which have made the money in other countries but have paid their tax in this country,” he added.
“It’s money that hasn’t come from our efforts in this country. We have benefited from a higher living standard than is really justified by our own efforts.”
He went on to criticise the abolition of the National Pension Reserve Fund during Michael Noonan’s time as minister for finance.
“I made the point that he could abolish the fund but he couldn’t abolish the liability, which is for the unfunded pensions of all social welfare beneficiaries, the Civil Service, the health service, the teachers, the guards, the Army, the local authorities, the universities,” Dr Somers said.
“There’s no money set aside to meet the pension liabilities of these people, which could be almost as great as the national debt itself. We have an ageing population and we’re going to have fewer people at work to support each pensioner in future.
“It’s great to put at least to put some money into a rainy-day fund but that’s not much comfort to people freezing in their homes and who are facing cost-of-living increases. It might have been better to reconstitute the pension fund because it’s less provocative to people.
“We elect governments and it’s up to them to make decisions on our behalf and if we don’t like it we know what to do about it.”
