into a state saving fund called the \u2018Future Ireland Fund\u2019.<\/a><\/p>\nThe idea is that Ireland has essentially \u2018struck oil\u2019 with the massive amounts in corporate tax it\u2019s getting every year. Rather than frittering the money away, the government promised to invest a chunk of it into the \u2018Future Ireland Fund\u2019.<\/p>\n
This came after endless warnings against using the windfall corporate tax for so-called \u2018day to day\u2019 spending. That is, the government\u2019s normal, recurring costs of running public services, such as healthcare and education.<\/p>\n
This is different from \u2018one-off\u2019 expenses, such as a big infrastructure project like MetroLink. Almost all economists, analysts (and people with common sense generally) advise using any \u2018windfall\u2019 for one-off expenses, as they are unreliable.<\/p>\n
Just three companies account for about 50% of Ireland\u2019s corporate tax revenues. If something happens to just one of them, it blows a hole in the public finances.<\/p>\n
So, bad idea. But despite this, most of the corporate tax windfall is being used for day to day spending. The government has become addicted to throwing around extra cash, with the pace of spending growth in Ireland rising faster than any other EU country.\u00a0<\/p>\n
Going back to the \u2018Future Ireland Fund\u2019. As day to day spending rises, there isn\u2019t enough left over to invest. Meaning \u2013 to meet the commitment of adding billions to the \u2018Future Ireland Fund\u2019, the state has to borrow.<\/p>\n
That\u2019s where the higher borrowing costs come in. And a big part of the reason why Ireland\u2019s spending on interest for the national debt will double from \u20ac3 billion to \u20ac6 billion.<\/p>\n
Again, our windfall billions should be going towards the \u2018Future Ireland Fund\u2019.
But that money has been diverted, with about 85% of corporate tax going towards day to day spending.<\/p>\n
Spend it\u00a0<\/p>\n
Of course, there are arguments in favour of spending the money.<\/p>\n
Ireland\u2019s population is rising quickly, meaning more people relying on state services. No one ever wants to cut areas like spending on social welfare, pensions or healthcare.
In fact, most of the alternative budgets recently unveiled by opposition parties have promised big spending packages.<\/p>\n
So it\u2019s not like there is a massive political push to reign in Ireland\u2019s spending, which causes the need to borrow, which will cause the extra \u20ac3 billion per year in interest payments.<\/p>\n
It\u2019s also worth noting that the government\u2019s approach \u2013 borrow and spend \u2013 came with much fewer drawbacks when interest rates were lower a few years ago.<\/p>\n
But borrowing costs for governments move up and down relatively slowly. There is always a big pool of debt which has a blended interest rate (some money cost 2% to borrow, some cost 3%, and so on).<\/p>\n
If Ireland\u2019s interest spending costs rise up to \u20ac6 billion per year, and the trend is upwards, it would likely take a long time for them to come back down.<\/p>\n
It is also worth noting that while some of the money flying out the door is essential \u2013 like population spending \u2013 not all of it is.<\/p>\n
Just last year the government committee to foregoing about \u20ac700 million per year to fund a tax break for the hospitality sector, something which economists have criticised as being based on very flimsy evidence.<\/p>\n
It is also spending hundreds of millions on Help to Buy, despite nearly half of recipients being able to buy a home without the support.<\/p>\n
And then we have the likes of mortgage interest relief, a policy almost universally reviled by economic experts.<\/p>\n
Shaky rationale<\/p>\n
The point is that the government is spending lots of money on measures which are not exactly life or death. And which may have a shaky economic rationale.<\/p>\n
While this has been enabled by the corporate tax windfalls, now all this spending is set to cost us an extra \u20ac3 billion per year.<\/p>\n
So it may be worth asking questions such as \u2013 do we really be spending money on measures described as \u2018anti-poor\u2019?<\/p>\n
It is worth noting that almost all countries borrow money all the time. It is normal to have a national debt, and it will always cost a certain amount of interest to service it.<\/p>\n
But the issue here is about making the debt bigger than needed for no good reason.<\/p>\n
Borrowing is normally best done for big projects outside of a country\u2019s day-to-day spending, such as building infrastructure. It isn\u2019t to keep the show on the road, as Ireland is doing.<\/p>\n
Finally, it\u2019s worth noting that the increased interest payments come at the same time PRSI is being raised for workers.<\/p>\n
This is being done to provide more money for Ireland\u2019s state pension system. Paying for retirees is also one of the aims of the \u2018Future Ireland Fund\u2019.<\/p>\n
But by borrowing money for the fund, we then have to spend more servicing our debt. So there is less money to go into pensions.<\/p>\n
It is an odd cycle which will continue as long as the government keeps breaching its own commitment to limit annual spending increases to 5%.<\/p>\n
The government has done exactly that for the last four years in a row. There are no signs it will change soon.<\/p>\n
So the interest payments will likely keep rising, despite all the windfall money rolling in.<\/p>\n","protected":false},"excerpt":{"rendered":"IRELAND IS FLUSH with cash \u2013 or at least, so we\u2019ve been told. The corporate tax magic money…\n","protected":false},"author":2,"featured_media":644473,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[5],"tags":[5168,166626,72,61,60,1087,4996,273631],"class_list":["post-644472","post","type-post","status-publish","format-standard","has-post-thumbnail","category-business","tag-budget","tag-budget-2027","tag-business","tag-ie","tag-ireland","tag-money","tag-spending","tag-windfall-cash"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/posts\/644472","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/comments?post=644472"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/posts\/644472\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/media\/644473"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/media?parent=644472"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/categories?post=644472"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/tags?post=644472"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}