(Bloomberg) -- Ireland’s government is about to present a giveaway budget to woo voters as it takes advantage of a financial position that’s the envy of many European countries.
While other economies are struggling with deficits, the Irish exchequer is flush with cash thanks to tax receipts from multinational firms, which will soon be topped up with a €14 billion ($15.6 billion) windfall from Apple Inc.
Prime Minister Simon Harris, just six months in the job, will be counting on the largesse to help him build on recent solid poll numbers for his Fine Gael party and cement his lead over Sinn Fein. An election must be held by next March, but there’s speculation that Harris will go early, perhaps as soon as next month.
He indicated at the weekend that there will be a significant “cost-of-living package” to help households. The coalition government’s budget is likely to include income tax cuts and more help for first-time homebuyers, local media have reported.
The budget will be the first for Finance Minister Jack Chambers, who’s overseeing a very welcome fiscal position. Tax receipts are soaring, and the European Commission forecasts a debt ratio of about 43% this year, less than half the euro-area average.
“We’ve seen strained public finances in the likes of the US, the UK,” said Loretta O’Sullivan, chief economist with EY Ireland. “Here the public coffers are flush, so there is scope in the budget to provide additional support to households, to businesses, to improve public services.”
Ireland is getting a payment from Apple after the European Union’s top court ruled that previous tax benefits breached state-aid laws and must be repaid. Ireland, ironically, opposed the decision.
Harris plans to use much of the money on housing – a top priority for voters – as well as water and energy infrastructure, he told Bloomberg Television last week.
Despite the positive financial backdrop, the government still has to spend carefully. Too much stimulus risks overheating the economy, pushing up inflation. The Irish Fiscal Advisory Council, the budget watchdog, has warned against adding “needless pressure” to the economy.
Tax volatility is another concern, given that just 10 multinational firms accounted for half of all corporate tax income in 2023. This leaves the public finances “vulnerable” to sector-specific shocks, the central bank has said.
For now, Harris is enjoying a honeymoon period, having brought fresh energy to his party. He’s taken a strong stance on immigration and vowed to increase house building, two main issues concerning voters.
A poll in September showed his approval rating at 55%, up 17 percentage points since May, with Fine Gael also gaining. Sinn Fein, the main opposition party, has lost ground after leading in polls in 2023.
But while Harris and the economy are flying high, the Fiscal Council has highlighted that if corporation tax is taken out of the equation, the country is running a deficit.
The budget will address some of the more immediate cost-of-living concerns of voters with handouts they will quickly see in their pockets. However, massive new investment will be needed to deal with long-term infrastructure issues, such as the country’s shortage of housing.
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