Ireland's €14bn windfall from Apple 'unlikely to cause overheating' of economy

Ratings agency said Ireland's fiscal framework is 'designed to cope with volatile corporate tax revenues,' allowing it to absorb inflows and prevent overheating

Fitch Ratings said the Apple windfall comes at a time when Ireland’s fiscal position is particularly strong. 

Ireland’s fiscal windfall of €14bn from Apple highlights the country's "continued strong budget performance," Fitch Ratings has said. 

Speaking on the verdict from the EU's top court last week, one of the world's largest ratings agency said Ireland's sound fiscal framework, which is "designed to cope with volatile corporate tax revenues, should help it absorb the inflows without causing short-term economic overheating risks."

The European Court of Justice ruled last week that Apple must pay more than €13bn of back taxes plus interest to Ireland, who the court said gave illegal tax advantages to the tech giant. 

Ireland and Apple contested the claim and, as Ireland was required to recover the state aid notwithstanding the litigation, the amount in question has been in an escrow account since 2018. The value of the Escrow Fund was €14.1bn on September 9.

Noting the verdict, Fitch Ratings said the windfall comes at a time when Ireland’s fiscal position is particularly strong. 

"Corporate tax revenue was €3.7bn in August 2024, more than double the August 2023 amount. Total revenue growth was 12.6% year-on-year in January-August 2024." 

As a result, Fitch has raised its budget surplus estimate for 2024 to €9bn or 1.5% of GDP, from 1% previously. Its higher forecast, which does not include the Apple payment, would be similar to the 2022 and 2023 surpluses, the agency said.

"Ireland’s strong budget performance and prudent fiscal rule contributed to our upgrade of its sovereign rating to ‘AA’/Stable in May 2024, when we noted its exceptionally strong fiscal position relative to rating peers."

"The current forecast ‘AA’ category 2024 median budget deficit is 2.3% of GDP and among eurozone sovereigns only two other countries – Cyprus and Portugal – have surpluses.

'Prudent' framework

The agency added that Ireland has a prudent domestic fiscal framework designed to mitigate risks from the large and highly concentrated windfall corporate tax revenue. 

"The government aims to limit nominal core spending growth to 5% over the medium term (based on 3% medium-term trend growth estimates and a 2% price stability assumption) and windfall corporate tax revenue will be saved in the Future Ireland Fund and the Infrastructure, Climate and Nature Fund."

It said its savings funds, which were announced in 2023, will strengthen the public-sector balance sheet over the longer term, with the agency assuming an annual average transfer to these of 1% of GDP to the end of its forecast in 2028.

"The government has not yet said how it intends to use the €14bn amount," Fitch Ratings said. 

"There is political pressure to increase core budget spending as well as housing investments. However, this could add to current expenditure growth, which is almost 10% so far this year, well above the 5% limit. 

"Persistent over-expenditure could erode the credibility of the fiscal framework."

Finance Minister Jack Chambers has said that the ECJ decision “will not impact on the parameters already set out” for the 2025 budget in the July summer economic statement and that drawing down the funds from the escrow account would take months, not weeks.

"Ireland’s low and declining debt ratios, budget surpluses and prudent debt management, mean that the total 2024 borrowing target of the Debt Management Office is just over €6bn and Fitch believes the scope to use the €14bn to reduce public debt is limited. 

"Medium-term refinancing needs are among the lowest in the eurozone, with 35% of outstanding debt maturing in the next five years, compared to the eurozone average of 47%."

Ireland’s total national debt currently stands at around €220bn.