The Irish 2019 budget will deliver a 0,1% deficit or just €195 million.
“I am now aiming and will deliver a fully balanced budget for 2019… and beyond that then looking to move our national finances into surplus,” Paschal Donohoe told the press on Sunday.
In effectthat means that Dublin is choosing to increase spending by €640 million. On Friday, Donahue increased its growth forecast from 5,6% to 7,4%. That will make Ireland the fastest growing economy in the EU.
Without any budget changes, Dublin could expect a budget surplus of €600 million.
For 2018 Ireland can count on an additional €1.1bn corporation tax windfall or 12%. The vast income surplus is due to the introduction of new accounting rules incentivizing companies to move forward corporation tax payments to 2018.
The Governor of the Bank of Ireland, Philip Lane has been urging the government to take advantage of the strong performing economy to reduce the debt-to-GDP ratio, which will require moving into budget surplus.
Instead, Dublin has decided to spend most or all of its unexpected budget surplus, investing in health, education, and police services whilst lowering income tax rates. The government is said to allocate more resources for social housing, as Ireland is facing an acute housing crisis.
Much of that spending will be paid by additional taxes on fossil fuels and a hike on VAT in the hospitality sector.
Much of this years’ additional income will be channelled to a “rainy-day” fund. Ireland’s remarkable performance is seen as fragile because a big share of public revenue depends on a handful of firms. That means the economy is highly vulnerable to economic downturns. Amid Brexit and fears of a global trade war, volatility is on the cards.
In addition, the end of the European Central Bank’s bond-buying programme is likely to increase the cost of refinancing Ireland’s public debt.
The Irish debt has dropped from 119,4% debt to GDP ratio in 2012 to just 68% in 2018. The key was growth. Since 2012, Irish corporate tax income has more than doubled. In the meantime, employment has reached 2,3 million, that is, an all-time record.
Indeed, Ireland has achieved a remarkable fiscal comeback from 13,8% deficit in 2009 to a whopping 32.1% in 2010, bouncing back to just 0,2% in 2017. However, Ireland’s economy remains highly exposed to global volatility.