Recent data suggests that the Irish economy is in good health. There are no forecasts of an imminent slowdown and strong tax revenues support the narrative that the financial position of the exchequer will look fine for another year or two. But in the medium term, there are reasons to worry and the Fiscal Council has been urging the Government to get better control of public spending and not to take its recent good fortune for granted.

In a briefing for Minister for Finance Simon Harris, officials at the Department of Finance have noted that public spending for 2026 will have grown 75% in just seven years, provided the figure for the coming year is actually delivered.

But budget forecasts are becoming meaningless – there was an overshoot of €4 billion in the year just gone and both the Department of Finance and Department of Public Expenditure have been unable to hold the spending departments to the limits voted by Dáil Éireann. Even if nothing goes wrong with the external economic environment, there is already a purely internal loss of control which, combined with the political fondness for tax giveaways like the VAT reduction on restaurants, are already threatening budget balance.

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The officials also drew attention to the risk that the corporation tax bonanza could prove temporary – if corporate tax receipts were at normal levels, reflecting only domestic economic activity, there would already be a sizeable budget deficit.

Along with the Central Bank and the ESRI, the Fiscal Council has also been urging caution. It has drawn attention to several future calls on the public purse which have not been provided for, including the build-up of obligations for retirement pensions, including the PRSI pension but also the retirement cost for large numbers of public employees.

There are unfunded obligations, pay-as-you-go outlays, and the population is ageing. Both male and female life expectancy is several years ahead of where they were a few decades ago. It is inevitable that the cost will outstrip revenue unless retirement ages are increased.

History is on the side of the Fiscal Council for another reason – there has rarely been an unbroken spell of steady economic expansion in Ireland and buoyant tax revenues have evaporated quickly in the past. The Irish economy is small and volatile, so it is fair to ask what might go wrong, even if there is never another banking bust on the scale of the 2008 disaster.

Recall though that the complacency which prevailed in the bubble years of booming stamp duty revenue, the confident expectations of a ‘soft landing’, evaporated very quickly when the tide went out. The banking bust made things worse but came on top of a period of irresponsible budgets.

Trade war

None of the bodies making forecasts have felt able to predict the form which a medium-term downturn might take. All are no doubt conscious of the many geopolitical uncertainties but are understandably reluctant to get specific.

There is no basis yet for ruling out a benign outcome, but the worry list includes a major shooting war in eastern Europe, already under way, and the early stages of a trade war across the Atlantic. The latest brainwave from US president Donald Trump is a selective tariff hike for eight European countries which have displeased him, specifically Denmark, Norway, Sweden, France, Germany, the UK, the Netherlands and Finland. The list looks arbitrary but coincides with those which sent small contingents to Greenland last week. All are members of NATO, of which the anchor member is none other than the US.

Trump has demanded that these eight US allies should support his offer to purchase, for a sum yet to be disclosed, the island of Greenland, part of the sovereign territory of Denmark. He is, in effect, using tariff policy to intimidate the eight countries, six also members of the EU.

Possible outcomes include the effective dissolution of the NATO alliance which would not affect Ireland directly, but also a collective response from the EU which certainly would. The EU is a customs union, which means that it has no tariffs between members and no checks at borders on goods circulating internally. US tariffs on goods from a subset of EU countries is not operationally feasible when the counterparty is a customs union. They would create a customs border between the Republic and Northern Ireland which is de facto part of the customs union.