Ireland is facing fiscal challenges ranging from unaccrued liabilities to over-dependency on multinationals, yet these critical issues remain largely absent from public discourse, writes Cormac Lucey
The most basic task of accountancy is to measure the results of a business over a given period. In the public sector, however, things are different. Voters may not want to know how serious everything is. Even when they are told, they may not care.
The US government’s budget deficit is expected to hit 5.6 percent of national output this year – far above the three percent limit set in law in the European Union – yet the issue has hardly featured in this year’s US presidential campaign.
Likewise, Ireland’s media has a hard time featuring the stories and facts people need to know. Here are four major issues that are generally absent from Irish public debate.
Issue 1: Unaccrued public sector liabilities
While formal US government debt is estimated to equal 123 percent of US national income (GDP), unaccrued public sector liabilities were reckoned (in a recent edition of The Economist) to come to around 580 percent of GDP. In America, the bulk of the national debt iceberg lies below the surface.
The same situation applies in Ireland. According to the Irish Fiscal Advisory Council (IFAC), the Irish government’s debt will equal €181 billion by the end of 2024.
However, a 2017 actuarial analysis carried out by KPMG estimated that the state’s unaccrued liability to PRSI contributors equalled €335 billion in 2015. On top of this, the state’s pension liability value concerning public service employees was estimated to be €176 billion at the end of 2021.
Actual state debt vastly exceeds publicly measured debt.
Issue 2: Looming long-term fiscal problems
A 2023 report carried out by the Office for Budgetary Responsibility warned that the UK’s national debt was on track to nearly triple relative to the size of the economy, from 99 percent of GDP today to 270 percent by 2070.
The key drivers of this expected deterioration are an ageing population, and costs related to climate change and higher defence spending (because of rising geopolitical tensions). Each of these factors applies to Ireland.
In addition, by 2070, Ireland may have to face up to the fiscal costs of national reunification.
Data from Britain’s Office for National Statistics shows that, for the financial year to April 2023, Northern Ireland raised £21.5 billion in revenue, mostly taxes, but spent £32.9 billion in current expenditure and £3.1 billion in capital expenditure, spending £14.5 billion (€17.5 billion) more than it raised.
Issue 3: Dependence on tax revenues from multinationals
Eighty-five percent of the state’s corporation tax revenues come from multinationals (MNCs), as do 55 percent of Ireland’s income tax revenues and 54 percent of VAT.
Apply this 54 percent share to the residual, smaller tax sources, and you can quickly see that more than 60 percent of the state’s total tax take is derived – directly and indirectly – from the multinational corporation (MNC) sector.
Meanwhile, the EU wants to strangle Ireland’s MNC golden goose, Donald Trump wants MNCs to repatriate their jobs to the US and Neil Morris – Amazon’s boss in Ireland – has warned that Ireland is “becoming complacent about foreign direct investment.”
Issue 4: Growing complexity and politicisation risk smothering productivity
The reason we live vastly improved lifestyles compared to our antecedents 200 years ago is not that we are intrinsically superior but because of much higher productivity.
However, there is little appreciation of the central importance of productivity, or of how it can be smothered by needless complexity and politicisation of the rules we must operate under.
The common feature of these four issues is that, while they are extraordinarily important, they have barely featured in public debate.
Sadly, the media in Ireland and Britain is dominated by plausible and pleasant talkers who have little understanding of what’s really going on. As a result, amiable spoofing wins out over hard facts.
Cormac Lucey is an economic commentator and lecturer at Chartered Accountants Ireland
*Disclaimer: The views expressed in this column published in the October/November 2024 issue of Accountancy Ireland are the author’s own. The views of contributors to Accountancy Ireland may differ from official Institute policies and do not reflect the views of Chartered Accountants Ireland, its Council, its committees, or the editor.
LOADING...