The Irish economy continues to be buoyant, notwithstanding the uncertain global economic environment.  GDP growth rates are expected to be 10%, 1% and 4% for 2025, 2026 and 2027 respectively.  (The large growth rate in 2025 and low rate in 2026 reflects multi-nationals bringing forward production and sales in 2025 to avoid Trump’s tariffs.)

There are now 2.8 million people in employment.  This is a remarkable number given that the figure was only about 2 million in the Celtic Tiger era (1994-2008).

In 2025 there will be a budget surplus of €10.2 billion and next year it will be €5.1 billion.  The Government debt to GDP [Gross Domestic Product] ratio is about 34%.   Admittedly the GDP figure gives a benign picture because of the importance of the multi-national sector to the economy.  But, even using the more realistic Debt to Gross National Income figure (reflecting domestic income), the figure is still quite low at about 59%.  This compares to a figure of about 100% for the United Kingdom.

But this approach doesn’t fully reflect the buoyancy of Government finances.  By the end of this year, the Government will have put aside €24 billion in its “rainy day fund” and, by the end of its term, it hopes to have €40 billion in this savings fund.  This is to hedge against a drop in Corporation Tax income.

Regrettably, from the Government’s point of view, the people don’t give it much credit for the economic success.  Indeed, the very economic success of the country has increased the demands on government to solve problems:  some of which are symptoms of the aforementioned success.

Commenting on last year’s Budget, this magazine congratulated the Government on resisting pressure from lobby groups and the main opposition party to reduce the VAT rate for the hospitality sector from 13.5% to 9%.  But this year Government finally succumbed!  The new lower rate of 9% will apply to food, catering and hairdressing from July 2026.

Apart from reasons of political expediency, it is difficult to understand this volte face.  Perhaps the Government is concerned about the increasing costs that the State is imposing on small businesses.  The minimum wage increased by €0.65 per hour to €14.15 (a 4.8% increase).  Small businesses will also have to cope with the increased cost and administrative burden of pension auto-enrolment.

Also, while inflation is at a modest 2.7%, food and beverage prices increased by 4.7%.

There are probably many firms in the catering sector that are struggling to remain in business.  But would it be such a bad thing if there was a contraction in employment in this sector?  An economy cannot live on coffee shops alone!  Agriculture and Manufacturing are the drivers of economic prosperity. 

There is a shortage of labour in sectors of the economy which badly need to be expanded such as investment in infrastructure.  And yet the supply of employment, fuelled by immigration, continues to increase.  The bulk of our economic growth in recent years has been due to increased employment.  In other words, labour productivity has stagnated, whilst numbers employed has increased.  This is the classic symptom of an economy with a bloated service sector.

In order to mobilise resources towards developing infrastructure, consumption must be suppressed.  In an economy of full employment there is no point in encouraging consumer spending, since increased expenditure will only lead to inflation!

Accordingly, the Budget did not increase Tax Bands or Tax Credits.  Given that inflation is at 2.7%, this represents a decrease in real disposable income.  This will be justified if there is an uplift in investment.

The Government plans to spend a massive €275 billion on capital expenditure in the next ten years.  In the next year alone it will spend €5 billion in capital expenditure on housing.  This is on top of expenditure incurred by the Land Development Agency.

One of the constraints on house builders is the availability of finance.  To compensate for the failure of the banks to supply credit, there will be €200 million available to Small and Medium Enterprises in the building sector.

€205 million will be allocated to the new Housing Activation Office.  This is a body which was recommended by the Housing Commission and consists of Department officials and infrastructure providers, such as the ESB and Uisce Éireann.  It is designed to clear any obstacles to house building.

One of the most significant failures of housing policy was the collapse of apartment building in the last year.  This only became clear after the last Election.

In an attempt to address this, the Government has reduced the VAT rate from 13.5% to 9% for the sale of completed apartments.  This will be effective immediately and will apply until 31st December 2030.  Two of the largest residential construction companies—Cairns Homes and O’Flynn Group—have welcomed this and have indicated that it makes a number of projects viable which would not otherwise be so.

Other business reliefs included an increase in the Research and Development credit from 30% to 35%.  This is quite a difficult credit to claim.  Only about 3% of those claiming are small to medium enterprises.  A cottage industry of consultants (many of them UK-based) has developed to ‘help’ such enterprises.  Maybe the Credit should be simplified.

An issue that came up in last year’s General Election was the cost of living.  In last year’s budget there was an array of once-off measures to mitigate increased costs.  Inflation reduced significantly last year but in recent months it has increased to 2.7%—which is still below the level of wage increases.

In this Budget the once-off measures were withdrawn, but there was a general increase in welfare rates of between 3.5% and 4%.

The lower VAT rate of 9% was kept on electricity, but energy credits were withdrawn.  There was a spike in electricity costs in 2022 (about 67% increase).  Since then they have decreased, but remain above the pre-2022 peak.  However recent indicators suggest there may be a double digit increase in energy costs in the next few months.  The Government may be vulnerable on this one!

It is difficult to disagree with the overall thrust of the budget, which was to concentrate on investment rather than increasing consumption.  It was interesting to note that Jack Chambers—the Fianna Fáil Minister for Public Expenditure—invoked the building of Ardnacrusha hydro-electric scheme by the Cumann na nGaedhal Government in the 1920s as an example of past success.

The Government has the means to solve our infrastructure problems. If it fails, the electorate will not be forgiving!