An Analysis of Medium-Term Risks to the Public Finances

Thomas Conefrey, Rónán Hickey and Graeme Walsh
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Thomas Conefrey: Central Bank of Ireland
Rónán Hickey: Central Bank of Ireland
Graeme Walsh: Central Bank of Ireland

No 6/EL/21, Economic Letters from Central Bank of Ireland

Abstract: As the COVID-19 pandemic abates, pressure on the public finances in Ireland should ease but projected strong growth in public spending will see persistent deficits and high government debt through to 2025. At the same time, there is uncertainty as to the scale of future long-term spending pressures combined with the risk of lower government revenue from corporation tax. Against this backdrop, this Letter examines risks to the public finances from further debt-funded expenditure increases, lower tax revenue or a negative external growth shock. The analysis suggests that permanent increases in current spending should be balanced with revenue-raising measures elsewhere in the budget. A permanent loss of corporation tax combined with a negative external shock could increase government debt to over 115 per cent of modified national income (GNI*) by 2025.

Date: 2021-09
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