The Irish Exchequer is running a large current budget surplus, despite a persistent pattern of spending overruns relative to budget, with the 2026 figure projected at €23.3bn ( 3.8% of GDP ). That gap between current spending and receipts is large enough for the Government to cut tax rates and increase spending whilst ensuring the surplus continues to rise, as seen in the 2027 Budget. The €1.45bn tax package included a €1.3bn cut in income tax, via wider tax bands and higher credits, with the largest percentage gain for those around the average income, worth around €670 a year , with the effective tax rate falling to 25.8% from 26.8%. The earlier year cuts in excise duty on fuel were also extended into 2027 and the scheduled carbon tax increase postponed.
The tax cuts will boost the economy so the net tax cost is smaller, and tax receipts in total are projected to rise by over €8bn, boosted by a significant forecast rise in Corporation tax. Total current spending also increases of course, but by €5.5bn (6.1%) so the projected current budget surplus increases to €26.3bn or over 4% of GDP.
One policy option could be to use these surpluses to reduce Debt but the Government obviously feels that given the growth rate in the economy the Debt ratio is not a concern, and it is projected to continue to fall in 2027, to 32.9% of GDP. Consequently the Government has chosen to spend heavily on capital projects, notably housing, and also to transfer Exchequer funds to the ICNF fund (€2bn a year) and the Future Ireland Fund (€5.8bn). Indeed the latter was set at €4.8bn , but this time has been augmented by €1bn.
The net result is a projected capital deficit in 2027 of €27.6bn and therefore an overall Exchequer deficit of €1.3bn. This and forecast overfunding by the NTMA results in a modest rise in Government Debt, to €214bn, and this pattern is projected out to 2030, with persistent Exchequer deficits raising the Debt to €243bn by that date. However, this still leaves the debt ratio lower. at 31.6% of GDP, given the projected rise in the denominator, nominal GDP.
The EU’s preferred measure of the fiscal stance is the General Government balance, which is Ireland’s case is still in surplus as it adds back the transfer to the two funds as well as, amongst other adjustments, a large surplus in the Social Insurance Fund. Consequently the General Government surplus in 2027 is forecast at €9.5bn or 1.5% of GDP, the same ratio as in 2026.
Forecasts rarely pan out and the 2027 Budget is predicated on a benign scenario in which GDP rebounds from a contraction this year to grow at 3.8%, modified domestic demand expands by 3.0%, inflation slows to 3% and employment picks up to match labour force growth, so keeping the unemployment rate at 5%. As is well known, Corporation tax is heavily depended on a few sectors and a relatively small number of firms and therefore a risk. Finance assumes that any such receipts above around 14% of total tax tax revenue are ‘transitory’ (having dropped ‘windfall’, thankfully) although these ‘transitory’ revenues have been evident for many years now and arguably structural rather than cyclical..