Coalition’s budgetary war chest balloons as election nears

Government’s latest stability programme update forecasts €38 billion in budgetary surpluses over the next four years

The Government expects to generate about €38 billion in budgetary surpluses over the next four years, a level of financial largesse that’s almost unique in international terms.

The projections, contained in the Department of Finance’s latest stability programme update (SPU), come as the International Monetary Fund sounds alarm bells about pandemic-bloated public finances in several European countries and ballooning public debt levels in the United States. US debt hit a record $34.4 trillion (€32.2 trillion) this year and is increasing at a rate of $1 trillion every 100 days.

Ireland has been shielded from this new era of debt and deficit by corporation tax, which has grown – in annual terms – from €4 billion to just under €24 billion in little over a decade.

It has allowed the Coalition to announce record budget packages while running down debt and saving for a rainy day.


In normal times these objectives would have been mutually exclusive or would have required painful financial trade-offs in other areas.

The rainy-day element – the Government’s plan to divert €6 billion of these excess tax receipts into two new savings vehicles – would perhaps have been jettisoned.

“When the windfall element of these receipts – estimated at around €11 billion, or almost half the projected corporation tax yield this year – is excluded, there is an underlying deficit in our public finances,” Minister for Finance Michael McGrath warned.

Stripping out these receipts, a deficit of €2.7 billion would be recorded this year instead of the €8.6 billion surplus now projected.

Despite a fall-off in corporate tax receipts so far this year, the Government is still predicting a record €24 billion in receipts to flow into the exchequer this year.

Having such a reservoir of cash at your disposal going into a budget on the eve of an election will test the financial credentials of the current administration. With Government parties trailing in the polls, the temptation to preside over a series of voter giveaways will be strong.

The only guard rail is the Government’s self-imposed expenditure rule, which seeks to keep annual spending inside a 5 per cent ceiling but which it has broken every year since its adoption in 2021. The Government won’t indicate the proposed size of the budgetary package and the indicative uptick in spending until the Summer Economic Statement but fiscal hawks will watching this space closely.

When asked about whether the rule would be adhered to now that inflation was coming down more rapidly than expected, Minister for Public Expenditure Paschal Donohoe defended the Coalition’s budgetary position while seemingly leaving the door open for another breach.

Whether expenditure increases by 5, 5.5 or 6 per cent “that decision is about hundreds of millions” when the Government is saving €6 billion “to ensure a better future for this country,” he said.