Gavan Reilly

In Politics by Numbers, broadcaster, author and spreadsheet stan Gavan Reilly takes a data deep dive into a political point of the week.     

A PECULIAR THING about the budget is that what you see only scratches the surface of what’s included. Those of us in the broadcasting world love to fixate on the Dáil speeches – partly because it’s visual, partly because it’s theatre, and partly out of tradition, harking back to when the whole thing wasn’t leaked to bejaysus first.

But what’s said in the chamber is a measly fraction of the full ballast of a budget, an advert without the terms and conditions. Budget Day also means the publication of hundreds and hundreds of pages of granular data across multiple technical documents. The devil is in that detail –as it was, for example, two years ago when they included the infamous €9 million fund for phone pouches.

If you listened only to the speeches from Simon Harris and Jack Chambers you wouldn’t have heard that, for the first time since the pandemic, Ireland will run a deficit next year. You would only have heard a passing reference to why: the existence of two long-term national savings funds that we are, by law, obliged to top up with billions of euros every year.

You wouldn’t have heard at all that we’re putting more into it next year than the law even obliges us to – and nowhere in the budget documentation would you have learned that putting money into long-term savings… actually costs us money.

Fool us once, shame on us

Michael McGrath’s final budget three years ago might end up being one of the most consequential in our post-bailout history. Somewhat unexpectedly, Ireland found itself awash with corporation tax – at a level that few would have reasonably predicted – but McGrath, as the first Fianna Fáil finance minister since Brian Lenihan, was wary of repeating past mistakes and using that sudden fortune to pay for everyday services.

The result was two long-term funds, the Future Ireland Fund (FIF) and the Infrastructure, Climate and Nature Fund (ICNF). The first is a giant pot intended to help Ireland cover the costs of catering to a growing and ageing population, and isn’t supposed to be touched at all until 2041. The latter is specifically intended to pay for eco-friendly measures, and could be tapped from now if circumstances required.

With so many billions being coughed up by companies who could simply move their operations abroad in future – and with the last similar national piggy bank emptied as part of the EU-IMF bailout – it made sense to keep building up a new national reserve. Laws were passed in the run-up to Election 2024 that ensured the funds could not be readily raided by any different government.

The ICNF gets a fixed payment of €2 billion every year by law, while the FIF payments vary depending on the size of Ireland’s GDP. That kicked off at €4 billion a year but has quickly grown, amid the continued popularity of Google’s advertising services and the active ingredient in Mounjaro, both of which are taxed here. This year, in fact, the boom is so boomy that Simon Harris is throwing in an extra discretionary €1 billion, meaning €5.8 billion being set aside for Ireland’s future needs.

That means the two long-term funds will be getting a combined €7.8 billion of our windfall corporate taxes next year. To that, there’s just one problem… we don’t have €7.8 billion of spare corporate taxes to lodge.

We’re in the red, in black and white

One of the documents published on Budget Day – the ‘Economic and Fiscal Outlook’ – spells all of this out. (That’s one of the documents that you wouldn’t hear mentioned in the televised speeches, though hard copies are handed out to TDs in the chamber.) “For the first time since the pandemic,” it says, “the Exchequer account will move into deficit this year and is expected to remain in the red over the forecast horizon.”

This, admittedly, is because of the transfers into the FIF and ICNF – and you can still think of the government as running a surplus, given it’s only in the red because it’s choosing to put money aside. But it does mean that funds which were set up specifically to house our ‘spare’ corporate taxes, now demand more cash than is running spare to give. And what the budget documents don’t say – but what the Fiscal Council will – is that this is because we’re simultaneously siphoning off these windfall corporate taxes for long-term saving, and using them to pay our everyday bills.

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Critique of that is beyond the scope of this column: economically this might be a bad idea, but politically it’s easy to find more areas of public service that are desperately under-resourced. There’s a reason why opposition parties routinely propose alternative budgets that spend more money and raise more tax revenue than the government does.

The timing of this is a little awkward. Governments worldwide are facing higher and higher costs of borrowing, given the inflation that has been kicked off by the Middle East fuel crisis. Borrowing costs for governments are set by auctions of investors; last month those investors forced the UK to pay 5.383% in annual interest on a 10-year loan. Ireland is partly insulated from this; last month it borrowed until 2035, paying 3.416%. Investors see us as comparatively safe because, in our gravest hour of fiscal precariousness, we still repaid all our debts. But by comparison, in 2024, Ireland paid only 2.6% for ten-year loans.

We’re ‘saving’, but not saving as we do

Compare that interest rate with the rate of return from the funds that Ireland has been squirrelling away. The annual report from the National Treasury Management Agency, which invests that cash on the public’s behalf, says both the FIF and the ICNF returned 2.2% last year. So, yes, we’re paying 3.4% to international investors, so that we can put the cash into long-term funds that deliver 2.2% in annual return.

It makes eminent sense to build up a national nest egg given the changes in demographics that are coming our way. Ireland remains the second-youngest population in the European Union, but falling birth rates mean that won’t always be the case, and the ratio of taxpaying workers to state pensioners is something that must be planned for. Having a huge national fund to cover these costs is very obviously a good thing.

But if you went into a bank and asked for a loan, saying you’d put the proceeds into a savings account, they’d think you were a bit cracked. On a macro scale that’s what Ireland is doing: signing up to a savings plan for its spare cash, only to use its spare cash for everyday living expenses and having to borrow to meet its savings obligations.

That’s something you won’t see in any budget documents.