Paschal Donohoe warns of uncertain economic outlook as 'mood-music is changing'

Mr Donohoe warns foreign direct investment cannot be relied upon

Ireland's near-term economic outlook is "clouded in uncertainty", Finance Minister Paschal Donohoe said today, warning the State must now commit to a new fiscal framework. Picture: Brian Lawless/PA Wire

Ireland's near-term economic outlook is "clouded in uncertainty", Finance Minister Paschal Donohoe said today, warning the State must now commit to a new fiscal framework.

Mr Donohoe is addressing today's National Economic Dialogue 2025, which focuses around the theme of medium-term budgetary planning against a rapidly changing global backdrop. The finance minister said Ireland's public finances are in a strong position on a headline basis but vulnerabilities due to reliance on corporation tax, and linked to that income tax, are more apparent than ever.

"Much of the headline balance arises from a handful of large multinationals and, as I mentioned, the mood-music is changing. It is not appropriate – indeed it could be dangerous – to plan on the basis of these receipts being permanent," Mr Donohoe said.

Mr Donohoe said the Government has also committed to using the revenue from the proceeds from the €13bn Apple EU Court of Justice ruling last year to invest in infrastructure, particularly in housing, energy, water and transport. "We know that these revenues are once-off and must not be squandered. They must be deployed in a transformative way – in a way that mobilises private capital such as inward investment. This is how we will maximise the return to the taxpayer on these funds."

 Last month, Government published its Annual Progress Report, with Modified Domestic Demand forecasts revised down to 2.5% per cent this year and by 2.75% in 2026, and warning if existing tariffs remain in place, this could be revised down by 1.5% each year.

Mr Donohoe said a revised European fiscal framework came into operation in April last year and this involves a "sea-change" in the way in which budgetary policy is framed, with public spending, net of tax changes, fixed over the lifetime of a government.

"The objective is to create fiscal certainty while ensuring fiscal sustainability; this is fundamentally different to the way we have conducted fiscal policy in the past and for this reason we have highlighted it as a theme of this years’ dialogue. In practical terms, this means Government must commit to a defined path for net public expenditure for the next five years. Ireland must choose an expenditure path suitable to our economic and fiscal conditions, and cannot deviate from it."