State to reach €26bn surplus over next two years

Government to revise economic growth forecasts as energy prices have “reversed more rapidly” than previously assumed

Minister for Public Expenditure Paschal Donohoe and Minister for Finance, Michael McGrath will update economic forecasts this afternoon.

The Government is forecasting a €10bn surplus this year followed by a more than €16bn surplus next year on the back of soaring corporation tax receipts.

The Government published its Stability Update Programme today with updated figures for economic growth.

Headline inflation for this year is expected to be 4.9% further moderating next year to 2.5%, Government projections show as energy prices have “reversed more rapidly” than previously assumed and as a result “headline inflation is now on a downward trajectory”.    

“The easing of headline inflation from the second quarter of this year will support real disposable income, which is assumed to strengthen as the year progresses.”  

Despite challenges related to the Russian invasion of Ukraine, increasing cost of living, and rising interest rates, the Irish economy has proven “remarkably resilient” according to the update. “This is most apparent in the labour market, where the rate of unemployment is close to historic lows and the number of people at work is at its highest ever level.”    

The Government is projecting a general government surplus of €10bn this year and €16.2bn next year.    Excluding corporation tax, an underlying general government deficit of €1.8bn is projected for this year. For next year, an underlying general government surplus of €4.4bn is projected, again if corporation tax is excluded.  

"We are projecting a surplus of €10bn for this year, the equivalent of 3.5 per cent of national income," Minister for finance Michael McGrath said. "This is based on the assumption of tax revenue amounting to almost €89bn, a growth rate of almost 7 per cent. While this is, of course, very much welcome, the headline surplus this year is heavily dependent on volatile ‘windfall’ corporate tax receipts. Excluding the impact of these receipts, estimated at almost €12bn this year, an underlying deficit of €1.8bn is projected for this year. This is a better metric for assessing the resilience of our public finances," he said.

The Government is projecting that strong employment is expected to continue in the near term with the number of people in jobs growing by 1.6% this year and by 1.4% next year. “In the absence of any shock to the economy, the unemployment rate is likely to remain at around 4½ per cent, consistent with any reasonable measure of ‘full employment’.”

Consumer spending is expected to increase by 3.9% this year and by another 3.8% next year.    

Modified Domestic Demand (MDD), which more accurately reflects the activities in the domestic economy, is expected to grow by 2.1% this year and by 2.5% next year. MDD grew by 8.2% in 2022 but slowed down during the latter half of the year.   

In GDP terms, the country is expected to grow by 5.6% this year and by 4.1% next year. The country’s public debt stands at €224.bn. 

Earlier today the Central Statistics Office (CSO) revised Ireland's surplus for last year to €8bn which is 1.6% of Gross Domestic Product (GDP).

The publication of the revised CSO figures was due to be published yesterday but was delayed following clarification from the European statistics agency Eurostat. It advises the CSO that funds for Defective Concrete Blocks Grant Scheme, or MICA redress scheme should be moved from upfront expenditure and should instead be recorded as money is paid out.