Ireland is facing a luxury paradox. It has become a rich country, with a surplus of 8.6 billion euros expected for 2024, driven by generous taxation of multinationals that have therefore arrived here in droves. But it does not know how to use the unexpected wealth without overheating the internal economy and therefore risk falling back into the past (ten years ago the necessary bailout that now seems like science fiction). And in the meantime it lives with two countries in one: where personal services and infrastructure remain concentrated in a few areas and where one child in seven lives in families below the poverty line.
With a population of around 5 million, Ireland has a GDP that has grown at an unprecedented rate in recent years, even five times faster than expected in 2023. This surge is largely due to a particularly advantageous tax system for multinationals, which has made Dublin a tax haven for large technology and pharmaceutical companies. Despite a recent increase in the tax rate from 12.5% to 15%, Ireland has maintained its attractiveness and tax revenues in 2023 reached 23.8 billion euros. They are expected to reach 24.5 billion euros in 2024. However, the government considers these revenues to be volatile and temporary.
And so Dublin does not know how to best and safely use this surplus of 8.6 billion euros expected for 2024 (Financial Times investigation). Caution seems to be the watchword. So? The executive has chosen to allocate a significant part of the surplus to sovereign funds to address future challenges, such as climate change, the ageing population and the need for infrastructure investment. By 2035, over 100 billion euros of the surplus is expected to be channeled into these funds. Using them now, the executive fears, would risk overheating the economy and causing inflation to spiral out of control again, which reached 9.2% in 2022.
But in a rich country, which boasts a surplus of 8.6 billion euros in the state coffers, a significant part of the citizens live in need of basic improvements. From the housing crisis (house prices are skyrocketing) to the need to improve energy, health and transport infrastructures. With the general elections approaching (2025) the government could be tempted to increase public spending to respond to social demands. There is talk of a financial maneuver that could lead to an increase in spending of 6.9 billion euros and additional fiscal measures for 1.4 billion euros. The challenge is clear: finding a balance between prudent savings and necessary investments, ensuring that this financial abundance does not translate into a new season of inequalities and social dissatisfaction.
