Forget the bravado about Ireland’s EU presidency – which begins on Wednesday – showcasing our position at the heart of European power. The reality is that for the next six months Ireland’s Civil Service will be run ragged trying to pull off the meetings, the ministerial photo-ops, the summit dinners and, of course, some tangible political process.
But amid all the All-Ireland style razzmatazz one thing is for certain: this EU presidency couldn’t come at a worse time for Ireland’s economic future.
That’s because just as the momentum builds for the latest EU integration drive, the presidency forces Ireland to the sidelines. So while Dublin plays referee, the other member states are gearing up for battles that will shape the future of Europe’s integration process.
In key areas – centralising capital market supervision, adding more EU-level taxes (own resources) and expanding the next EU budget – various coalitions of member states are determined to push ahead with changes they see as essential to Europe’s future.
These are debates that challenge the foundations of Ireland’s current economic model. The basis of which, as recently noted by yet another Central Bank of Ireland paper, is a spend faster model whose recklessness remains camouflaged by our United States multinational friends. Stripped of our windfall corporate taxes Ireland will be running an underlying budget deficit of 6 per cent by 2030.
So while our Government parties are still dreaming of income tax cuts in forthcoming budgets, most economists are predicting various shades of financial Armageddon.
That is why this EU presidency will mark the beginning of Ireland’s next budgetary crisis. It will crystallise the financial cost of our artificially inflated economy when it comes to the EU budget. And this cost – in the form of ever-increasing annual contributions to Brussels – is the extra tax Irish citizens already pay for our deepening dependency on corporate tax revenue.
Think about it.
Ireland is far from the wealthiest state in the EU. A former governor of the Central Bank, Patrick Honohan, previously ranked Ireland “somewhere between eighth and 12th in the European Union – a lot lower than is commonly presumed. The lower ranking comes not only from removing the distortions from multinationals, but also from taking account of the fact that consumer prices in Ireland are relatively high”.
Let’s run with his refreshing honesty. Strip out the multinational sector and Ireland’s domestic economy is more diesel intercity than high-speed express.
Yet Ireland is already one of the largest net contributors to the EU budget on a per-capita basis. According to the European Commission’s 2024 figures, Ireland’s net contribution – what we pay in minus what we get back – comes to €211 per person.
This represents a premium of at least 30 per cent compared to other net contributor, highly developed states – states which Ireland deludes itself as being comparable economies. For example, Denmark’s net contribution is €154 while Austria’s is even less at €131.
This is a serious additional cost, given that the Department of Finance projected in 2023 that our annual contributions to Brussels would reach €4.5 billion by 2027. A figure that now looks hopelessly conservative given Ireland’s strong economic performance since then.
So we are left with a distorted domestic economy (driven by US multinational capital flows and taxes), which artificially increases our contributions to the EU budget.
But, worst of all, there doesn’t seem to be a coherent plan to lessen our addiction to US multinationals or any strategic attempt to reduce our contributions to the EU budget. Incredibly, inertia seems to be the preferred political policy.
Sure, it’ll all be grand. Hopefully.
Yet a clear strategy exists at European level that would cap – and possibly even reduce – our nationally sourced financial contributions to Brussels. That would involve member states allowing the EU to develop more of its own resources, basically tax streams that flow directly to Brussels. These new streams of revenue would complement the existing VAT, customs duties and plastic waste contributions and remove more of the EU budget from the vagaries of domestic disputes.
Alas, the spectre of US multinationals still looms large over Ireland’s response. The Taoiseach’s recent assertion that contributions based on economic size (gross national income or GNI) remain “the fairest and simplest way” to fund the EU highlights less Ireland’s principles and more the opposition of our US investors to the new proposals.
This is unsurprising, given the two most meaningful proposed new revenue streams – some form of digital tax on large corporations and an additional levy on large multinationals – would smack our largest sources of corporate tax income straight in the face.
The reality is Ireland is now trapped in a budgetary prison of its own making. We’re among the highest net contributors to the EU budget yet our politicians argue for more EU spending. Tools to reduce our contributions to Brussels are constrained by the response of the multinationals who are responsible for distorting our contributions to Brussels in the first place. Yet we literally depend on our corporate tax receipts to keep the lights on and the buses running.
We spend next to nothing on defence. Our population will soon begin to age sharply. And our physical infrastructure is below European averages.
If this isn’t a looming budget crisis then I don’t know what is.
Eoin Drea is a senior researcher at the Wilfried Martens Centre, the official think tank of the European People’s Party, of which Fine Gael is a member