Most recent Economic Perspectives for Ireland
Recent data point to continuing strength in Ireland’s multinational-focussed export sector and an improving picture for domestic demand. As a result, recent forecasts from both the Dept of Finance and Central Bank of Ireland now put Irish GDP growth for 2021 in the region of +15%, in line with KBC estimates. In turn, strong activity has prompted a sharp downward revision of the size of the government budget deficit for this year from an initially estimated 4.9% of GDP to 3.1% of GDP.
Buoyant tax revenues and a smaller than envisaged increase in public spending have also encouraged a notably more positive outlook for the Irish public finances in coming years. The recently presented budget for 2022 envisages progressive improvements delivering a broadly balanced budget position by 2024 and a small fiscal surplus in 2025. The Budget also provided for continued support for pandemic-affected sectors into 2022 and made some modest adjustments to social welfare rates welfare rates and tax bands to partly offset the impact of higher inflation on living standards. It also confirmed a previously signalled major increase in public investment.
The Budget arithmetic makes provision for a notable weakening of Irish corporation tax receipts in coming years in anticipation of changes to the global tax regime. In early October, Ireland announced its intention to sign up to OECD proposals for a minimum global corporation tax rate of 15%. While the details of a new global tax framework remain to be finalised and agreed, it is envisaged that the move from Ireland’s present 12.5% corporation tax rate and the re-allocation of some element of tax bases from producer countries to consumer markets would lead to a material but manageable reduction in Irish corporation tax receipts but would not prompt a major loss of foreign direct investment.