Governments around Europe, including all that use the single currency and post-Brexit Labour in the United Kingdom, are wrestling with the public finances. Facing steep increases in military expenditure and the break-up of defence co-operation with the USA, they have been slow to offer tax reliefs in response to the war in the Middle East and reticent about promises to the electorate.

In Ireland, ministers are remarkably relaxed about the overall state of the public finances, not sufficiently to please opposition parties or their own backbenchers, who demand new lines of expenditure almost daily in the avalanche of press releases and social media posts.

Corporation tax revenue continues to exceed forecasts and, if it goes on forever, Ireland has discovered a gold mine whose proceeds may as well be distributed to a grateful electorate.

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If the gold mine runs out, as did the stamp duty bonanza which flattered the budget numbers during the pre-2008 bubble while the banking system was going bust, the result will be the same: tax increases and spending controls, already on the agenda in almost all neighbouring countries.

The banks are supervised better now, and better managed, so the budgetary position will have to engineer a bust on its own if the doom-mongers are to be vindicated.

They could be.

All it takes is an international slowdown and an outbreak of America First on corporate taxation, already signalled by some politicians in both parties in Washington.

Gold mines eventually run out and the last one was accompanied by extraordinary complacency in Irish politics – remember the ‘soft landing’ forecasts so confidently relied upon by the governments led by Bertie Ahern and Brian Cowen?

When the gold ran out, we had to resort to an international bailout led by the IMF and four or five years of austerity and high unemployment.

Pattern

The last few years have seen a persistent pattern of failure to deliver on budget-day limits on spending, themselves generous, alongside a steady drip feed of tax giveaways.

The apparent budget surplus survives and encourages all in politics to enunciate plans for more of the same.

The independent think-tanks, including the ESRI and the Fiscal Council, have been warning that public spending pressures will increase as the population ages but slow to speculate on the fragility of Ireland’s exposure to changes in US policy on corporation tax.

It is open to the US authorities at any time to require corporations which are tax-domiciled in the USA to pay full corporation tax at US rates (higher than Ireland’s 12.5%) on worldwide profits, eschewing their current options in Ireland, Luxembourg and several islands in the Caribbean.

Since the federal budget in the USA is in heavy deficit, rising because of military expenditure on the Iran conflict, lawmakers in Washington have an easy option of which they are well aware.

The Commerce secretary in Trump’s cabinet, Howard Lutnick, has mentioned Ireland explicitly in this context.

In March 2025, he described the Irish bonanza as his ‘favourite tax scam’ and promised to end it. Nervousness about the durability of the revenue bonanza has hitherto been confined to worries about the small number of major sources, as few as three or four large tech and pharma companies.

The better strategy is surely to consider what the Irish budget accounts would look like if corporation tax was flowing in at more normal rates, and the picture is not pretty. Just three companies pay more corporation tax than the latest estimate of the budget surplus, currently burning a hole in the pockets of politicians of all parties.

Were just these three to exit, there would be a sizeable deficit and if corporation tax yielded the traditional portion of total taxes, the deficit would be unsustainable very quickly.

There is a further source of risk to debt sustainability and that is defence expenditure. Neutrality and the annual saving from a small military have been a gift to Ireland’s public finances.

Defence expenditure

Every country in Europe is boosting defence expenditure and there is a vocal lobby in Ireland to do the same.

It consists of current and retired military officers but also includes, for example, several opinion writers in the mainstream press and the Minister for Finance, who has endorsed, without a cost estimate, the construction of a naval base in Galway, followed by local politicians seeking further bases in the Shannon estuary, in Dublin, Donegal and elsewhere.

Ireland’s defence expenditure is currently around one-fifth of 1% of GDP, while all NATO members are en route to much higher figures, approaching 5% in Poland.

The implication is that Ireland, in NATO or outside, could end up having to find €15 billion or even more to fund military expansion.

Amidst all of the uncertainties, the prudent course is cautious budgetary policy.