As we edge closer to October 1 we keep getting reminders of the need for fiscal responsibility in the upcoming pre-election budget.
Hopefully, the Government is seeing the same reminders and will acknowledge them on budget day.
The two pertinent reminders revolve around our dangerous dependence on the foreign-owned multinational sector, and secondly the challenges around infrastructure, particularly water and energy.
First, we can start off with the Tax Strategy Group (TSG) papers that were published by the Department of Finance last week. For anybody interested in Irish taxation and the structure of the various taxes that are collected, these reports are a veritable font of riches.
A few key points stick out in the context of this article. Firstly, the incredible progressivity of the Irish income tax system.
The top 10% of earners, earning over €102,000 pay 63.2% of total USC and income tax and 40% of taxes are paid by the employees of foreign and domestic multinational enterprises (MNEs).
It is great to see how vibrant the multinational sector is in the Irish economy, but it highlights just how detrimental adverse events out of our control could be for the economy, the labour market, and the public finances.
The second reminder is the early publication of ‘Ireland’s Competitiveness Challenge 2024’ by the National Competitiveness and Productivity Council (NCPC).
The NCPC’s recommendations revolved around embracing the European Single Market to a much greater extent to enable Irish firms scale up; addressing issues relating to the cost of doing business; building and retaining a skilled and talented labour force; embracing the opportunities afforded by technological change and innovation; and tackling obstacles to the planning and delivery of sustainable infrastructure.
The latter point is key, as Ireland is now at serious risk from inadequacies in the energy grid and water system.
Infrastructural deficits act as a drag on competitiveness and can do serious damage to our international reputation in an increasingly competitive and pressurised world for mobile international investment.
All these issues are incredibly important from a medium- to long-term perspective, but action is required now.
I earlier highlighted the dangerous dependence the Irish economy has on foreign-owned multinational enterprises.
We need to do everything we can to retain what we have in the face of intense competition, but it is also important to develop a stronger indigenous enterprise sector to counterbalance the FDI exposure.
In the event of a Trump victory, we could be facing significant trade barriers and tariffs, corporation tax changes, and a generally very ‘America First’ agenda.
The corporation tax boom in Ireland has not gone unnoticed in the US. In the event of a Kamala Harris victory, there is more uncertainty in relation to attitudes towards globalisation, but the Joe Biden administration was not averse to trade barriers either.
We need to recognise that we have significant concentration risk in the Irish economy; international pressures on our economic model are intensifying; and we have significant competitiveness challenges to address to protect our international reputation.
It is time for a long-term strategic focus, rather than a populist scattergun approach to the public finances.