Ireland is awash with corporate tax cash - so why will we pay €6bn a year to borrow money?

IRELAND IS FLUSH with cash – or at least, so we’ve been told.

The corporate tax magic money tree is the gift which keeps on giving.

Officials previously estimated it will generate a staggering €35 billion this year, which would make it nearly the single most important source of revenue to the state (income tax is still just ahead).

It is now set to beat even that lofty estimate ‘by a wide margin’.

The ongoing windfall has single-handedly helped buffer the public finances, with Ireland anticipated to run a surplus of more than €9 billion for 2026.

But even as all this money is flowing into the state, it is flowing out again even faster.

The government has made a bad habit of overshooting its own budgets, consistently spending more than anticipated.

The habit is driving an odd quirk. Despite running a surplus, Ireland is borrowing to save money.

The interest the country pays on its debt is set to double – rising from a cost of €3 billion per year as of 2025, to €6 billion by 2030.

It is an enormous amount of money – €3 billion would fund the construction of about 10,000 new homes per year. Or help pay for the country’s state pension system. So spending so much extra on interest doesn’t seem like a good idea.

This is something which the Central Bank recently flagged with politicians. It warned them that borrowing costs have recently jumped significantly, making it more expensive for Ireland to take on extra debt.

The regulator said that the country could save significant amounts of money if the government stuck to its own spending plans.

So why doesn’t it?

Let’s take a look.

Investing cash

The government previously committed to putting billions into a state saving fund called the ‘Future Ireland Fund’.

The idea is that Ireland has essentially ‘struck oil’ with the massive amounts in corporate tax it’s getting every year. Rather than frittering the money away, the government promised to invest a chunk of it into the ‘Future Ireland Fund’.

This came after endless warnings against using the windfall corporate tax for so-called ‘day to day’ spending. That is, the government’s normal, recurring costs of running public services, such as healthcare and education.

This is different from ‘one-off’ expenses, such as a big infrastructure project like MetroLink. Almost all economists, analysts (and people with common sense generally) advise using any ‘windfall’ for one-off expenses, as they are unreliable.

Just three companies account for about 50% of Ireland’s corporate tax revenues. If something happens to just one of them, it blows a hole in the public finances.

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.

Going back to the ‘Future Ireland Fund’. As day to day spending rises, there isn’t enough left over to invest. Meaning – to meet the commitment of adding billions to the ‘Future Ireland Fund’, the state has to borrow.

That’s where the higher borrowing costs come in. And a big part of the reason why Ireland’s spending on interest for the national debt will double from €3 billion to €6 billion.

Again, our windfall billions should be going towards the ‘Future Ireland Fund’.
But that money has been diverted, with about 85% of corporate tax going towards day to day spending.

Spend it

Of course, there are arguments in favour of spending the money.

Ireland’s 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.

So it’s not like there is a massive political push to reign in Ireland’s spending, which causes the need to borrow, which will cause the extra €3 billion per year in interest payments.

It’s also worth noting that the government’s approach – borrow and spend – came with much fewer drawbacks when interest rates were lower a few years ago.

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).

If Ireland’s interest spending costs rise up to €6 billion per year, and the trend is upwards, it would likely take a long time for them to come back down.

It is also worth noting that while some of the money flying out the door is essential – like population spending – not all of it is.

Just last year the government committee to foregoing about €700 million per year to fund a tax break for the hospitality sector, something which economists have criticised as being based on very flimsy evidence.

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.

And then we have the likes of mortgage interest relief, a policy almost universally reviled by economic experts.

Shaky rationale

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.

While this has been enabled by the corporate tax windfalls, now all this spending is set to cost us an extra €3 billion per year.

So it may be worth asking questions such as – do we really be spending money on measures described as ‘anti-poor’?

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.

But the issue here is about making the debt bigger than needed for no good reason.

Borrowing is normally best done for big projects outside of a country’s day-to-day spending, such as building infrastructure. It isn’t to keep the show on the road, as Ireland is doing.

Finally, it’s worth noting that the increased interest payments come at the same time PRSI is being raised for workers.

This is being done to provide more money for Ireland’s state pension system. Paying for retirees is also one of the aims of the ‘Future Ireland Fund’.

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.

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%.

The government has done exactly that for the last four years in a row. There are no signs it will change soon.

So the interest payments will likely keep rising, despite all the windfall money rolling in.