Irish economy supported by buoyant government spending
Yesterday’s exchequer returns show tax revenues remained robust in H1 2025, up 10.5% on the year to €45.9bn. Income taxes (4.3%), VAT (5.8%) and corporation taxes (7.4%) all exhibited substantial gains – and indicative of further growth in consumer spending and employment. Of course, corporate taxes remain potentially volatile with ten firms accounting for 57% of receipts in 2024. However, the implementation of the 15% effective rate in 2026 and depreciating capital allowances on past investments will likely boost corporate tax revenues next year.
Gross voted public spending in H1 2025 was €51bn, up 8.2% on 2024, a rapid pace and including sharp rises in key spending departments such as education (8.2%) and health (8.8%). This is far faster growth in public expenditure than the 1.7% growth the Department of Finance had forecast in May for spending to rise to €105bn in calendar year 2025. Indeed, gross voted spending was €107.5bn in the twelve months to June, already exceeding this figure. So the risk to our forecast for real public spending on goods and services to expand by 3.5% in 2025, making a 0.7pp contribution to modified domestic demand growth in 2025, lies to the upside.
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