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Irish Examiner
3 days ago
- Business
- Irish Examiner
State to lose tax revenues as people move to electric vehicles but missed climate targets will cost us
Tax revenues could fall by as much as the Universal Social Charge brings in each year as more people switch to electric vehicles and renewable energy sources, the Irish Fiscal Advisory Council has warned. However, the budgetary watchdog has warned that missing key climate transition targets would be much costlier and could amount to €5,000 for every person in the country. In its biannual Fiscal Assessment report, the Council warned that the Government's two-year forecast horizon is much too short, and the twin challenges of an ageing population and the climate transition cannot be adequately prepared for. In relation to climate change, the Council estimated that 'reasonably manageable' spending increases of approximately €2bn per year will be required to achieve the necessary transitions. However, they said a bigger challenge will be to replace the taxes likely to fall away as people shift to cleaner transport and energy. The Council said the current tax system would raise far less revenue in a future where electric vehicles and renewable energy become the norm. If today's tax system was left unchanged, they said the fall in annual revenues would amount to €5bn in today's money, almost as much as the USC tax raises. While the climate transition raises challenges for tax revenues, the Council warned that doing nothing has substantial costs. "If Ireland fails to reduce its emissions, as it currently looks set to by a wide margin, it may have to transfer an enormous amount of money to neighbouring countries," the report states, with the government required to purchase transfers or credits from other countries, the costs of which could be extremely high. The Council estimates that the costs of missing climate targets could reach as high as €26bn. "A transfer of as much as €26bn would be a colossal waste of taxpayers' money — equivalent to almost €5,000 for every person in Ireland," the report warns. "Instead of transferring this money to neighbouring countries, the government should take more effective action to avoid these costs, reduce energy costs and pollution, and improve people's health." In relation to Ireland's ageing population, the report said that action taken sooner rather than later will ultimately be less costly. "While other countries are experiencing ageing populations, Ireland is facing a more rapid change," the report states, warning that by 2057, one in three people will be over the age of 65, putting more demand for healthcare, long-term care and pensions. It will also mean slower growth in the economy and hence in tax revenues. The Council said the steps taken by the Government should have an impact. The Future Ireland Fund has been established as a way of saving the 'extraordinary' corporation taxes being collected. The Government has planned gradual increases in Pay Related Social Insurance (PRSI) to help fund increased spending needs. "Modelling by the Council suggests that the Future Ireland Fund could make a substantial dent in ageing costs, covering more than half of the rise in annual spending associated with ageing between 2023 and 2041 and a quarter by 2050," the report states. "On their own, these measures will still not fully offset costs associated with ageing. However, they are an important part of the solution to dealing with these costs, which will fall much more heavily on the next generation of taxpayers."
Irish Examiner
19-05-2025
- Business
- Irish Examiner
EU Commission warns Ireland's deep economic ties with the US pose a notable risk
Ireland's GDP is forecast to grow by 3.4% this year, according to the European Commission's Spring 2025 Economic Forecast. However, it said Ireland's deep economic ties to the US pose notable downward risks in the context of rising protectionism. "The general government balance is forecast to remain in surplus, though significant risks arise from the uncertain outlook for corporate tax revenues," the forecast states. The report said the Irish economy entered 2025 in a strong position with real GDP rising 1.2% in 2024, driven by a rebound in exports, while modified domestic demand grew by 2.7%, supported by a robust labour market and easing inflation. The commission said Ireland's debt levels will continue to fall, but not as quickly if budget surpluses were not transferred to the Future Ireland Fund and the Infrastructure, Climate and Nature Fund. They warned that a weaker performance or a downsizing of the multinational-dominated sectors would significantly affect tax revenues. "The outlook for corporate income tax revenues is particularly uncertain, given their concentration among a relatively small number of large multinational companies and a large portion estimated to be windfall," the Commission said. The overall European economy began 2025 on a somewhat stronger footing than anticipated, the Commission said. It is projected to keep growing at a modest rate this year, with growth expected to pick up in 2026, despite heightened global policy uncertainty and trade tensions. The Commission's Spring 2025 Economic Forecast projects real GDP to grow by 1.1% in 2025 in the EU and 0.9% in the euro area, broadly the same pace as recorded in 2024.
