Ireland's economy set to 'worsen', warns head of Department of Finance

Ireland, while better placed than most, 'is not immune' to the inflationary and recessionary trends being seen across the world.

Ireland’s economic situation is set to “worsen” for the foreseeable future, according to the head of the Department of Finance.

John Hogan, the department’s secretary-general, will tell the Public Accounts Committee (PAC) on Thursday that Ireland, while better placed than most, “is not immune” to the inflationary and recessionary trends being seen across the world.

“Increased rates will mean higher borrowing costs for individuals and businesses, dampening consumption and potentially leading to less investment across the economy,” Mr Hogan is expected to say.

“In summary, the economic situation will worsen over the short to medium term,” he will say.

Mr Hogan is expected to say that, of the Government’s investments in Irish banks as part of a stabilisation process in the wake of the 2008 banking crash, the “vast majority” of the €37.3bn pumped into Anglo Irish Bank “will unfortunately never be recovered”.

The estimated cost of Ireland’s bank stabilisation measures increased by €4bn in the three years to end 2021, with the primary reason being the decrease in the value of the State’s investments in the three pillar banks — Bank of Ireland, AIB, and Permanent TSB — in that time from €8.4bn to €4.9bn, Mr Hogan will say.

Ireland finally relinquished its shareholding in Bank of Ireland in September of this year, however, it retains 62.4% of PTSB and 57% of AIB. 

Mr Hogan will tell the committee the reductions seen in those shareholdings over the past two year to a value of €5.3bn represent “good progress”.

Taxation

In terms of taxation, he will tell the committee that Ireland’s strong performance in income taxes at present is “very encouraging”.

Tax income for the Government in 2021 was €26.7bn, almost €4bn higher than the take for 12 months previous, with income tax driving 39% of that figure.

Mr Hogan is expected to tell the committee his department estimates the level of corporation tax — typically the most volatile of tax cohorts —  to be between €4bn and €6bn.

He will tell the committee all future Government balance sheets will be supplied with a second figure to reflect the “underlying vulnerability” of the tax regime to unpredictable corporation tax receipts.

Mr Hogan will appear before the committee accompanied, among others, by the head of the department’s shareholding and financial advisory division Des Carville, who has overall responsibility for the State’s investments in the banking sector.

Mr Carville formally worked for Davy Stockbrokers, during which period he twice leaked confidential information regarding the sale of services firm Siteserv to a corporate finance consultant.

The senior civil servant last year completed the advanced management programme at Harvard University in the US at a cost to the State of €61,500.