IRELAND’S FINANCES MAY be as vulnerable now as they were in the lead-up to the financial crisis of 2008 because of the government’s reliance on windfall tax revenues from international corporations.

That’s the assessment of the Economic and Social Research Institute (ESRI), which has published an economic forecast today that recognises the Irish economy’s “robust state” but also highlights some key factors posing significant threats to growth and stability.

While the government has been running a budget surplus in recent years because of the inclusion of these windfall taxes, in real terms it has been running a deficit, the ESRI warned.

Essentially, if the taxes from US-owned companies suddenly dried up, the State’s finances would be left in a similar situation to that of the late 2000s, when the collapse of the housing market triggered a major recession that essentially bankrupted the country.

“We do genuinely worry about the windfall revenues and the extent to which there is this remarkable vulnerability in the tax base,” said former ESRI director Alan Barrett.

Barrett departed his role as ESRI director this month after serving a ten-year term. He handed over the reins to Professor Martina Lawless, who was appointed in late April.

He noted that this was not to say that revenue will disappear anytime soon, “but the possibility that it could just fills us with a certain concern” because it is “hard not to think of the sort of vulnerability that existed in the tax base in the late 2000s”. 

The ESRI acknowledged that tax receipts are increasing, but warned this has been contingent on corporation windfall taxes. 

“A dip in corporate tax revenues in May served as a reminder of the potential vulnerability in the public finances due to the importance of this windfall source of revenue,” the ESRI said. 

“Expenditure, which is increasing faster than planned in Budget 2025, has increased considerably relative to the size of the domestic economy in recent years.”

Speaking to RTÉ’s Morning Ireland programme today, Minister for Finance Paschal Donohoe acknowledged that “some” of the corporate tax revenue was being used in day-to-day spending.

“But this is the reason why, for years, I’ve been acknowledging this as a risk, and for years I’ve been making the case for our public finance has been in surplus, and I’ve returned them to surplus twice, and this and the last government have done the same,” he said.

He said the budget surplus would help to smooth the transition “if we do see a big change in corporate tax receipts in the future”.

“If that budget surplus is not adequate, we then have money set aside in a fund called Future Island fund to help us transition to a lower level of corporate tax revenue.”

This vulnerability associated with the dependence on US corporations in Ireland is made all the more acute by the uncertainty produced by recent US trade policy, which the ESRI said is clouding predictions of economic growth. 

Economic uncertainty has never been as high as it is now, the ESRI said, citing levels above those seen during the Covid-19 pandemic and the recent inflation crisis connected to the Russian invasion of Ukraine in 2022. 

The ESRI remains guarded about the accuracy of its forecasts in light of the ongoing negotiations over US President Donald Trump’s tariffs.

With this uncertainty in mind, the ESRI expects GDP to grow by 4.6% this year and 2.9% in 2026 while exports are forecast to grow by 5.4% this year and 3.3% next year.

But the institute warned that “if trade wars between the US and its trading partners intensify, this forecast will need to be revised downwards”.

While the frenzied nature of the back and forth between the US and its trading partners appears to have settled down and is no longer dominating the headlines, that doesn’t mean the threat to Ireland’s economy has passed, Barrett explained.

“Things may not seem as dire as they did a number of months ago, but nevertheless, until that entire process works itself out, we have to be aware of the potential vulnerabilities for Ireland and the potential difficulties.”