What does Budget 2027 mean for the wider economy? Goodbody Chief Economist Dermot O’Leary highlights the key economic themes from this year’s Budget, including the fiscal position, spending plans, investment measures and Ireland’s debt outlook.
Budget surplus expected for sixth consecutive year in 2027
In contrast to the strains that are apparent in some European sovereigns currently, Ireland’s public finances, at a headline level at least, remain in rude health. As expected, Budget 2027 points to Ireland running a headline budget surplus (2.5% of GNI*) for the sixth consecutive year. The surplus is underpinned by continued growth in tax revenues and comes despite spending growth which is expected to continue at rates above the economy’s long-term potential. Concentrated corporation tax revenues remain a medium-term concern, but in the short-term are providing a bounty to support spending, particularly on infrastructure.
Capital spending to rise to a new high in 2027
The make-up of Budget 2027 was well-flagged in the Summer Economic Statement in July. Voted spending measures of €7bn were announced, focusing on welfare rates, public sector pay, health and capital spending increases. The capital spending package is in fact bigger than the voted spending numbers suggest as there is additional €1.1bn for additional “Strategic Capital Investment” and for the Metrolink in Dublin. These “non-voted” elements will increase capital spending to 6% of GNI% in 2027, a new cycle high, and amongst the highest levels in the EU. The work of the Accelerating Infrastructure Taskforce to unblock issues in the chain will be important in ensuring that this money is spent.
Income tax reductions & new investment account welcomed
The tax package was in line with expectations and was predominately made up of increasing income tax bands. This will provide a modest boost (c.1.7%) to aggregate disposable incomes in 2027, but inflation will have the opposite effect over the coming twelve months. Details of the new Savings and Investment Accounts (SIAs) were also announced that will improve the attractiveness of investing for Irish households, while simplifying the tax treatment and administration of qualifying investments.
Net debt expected to fall to 35% of GNI* in 2027
By the end of 2027, the Irish government is expected to have put aside €32bn into two savings funds managed by the NTMA. This is helping a rapid reduction in net debt, which could fall to 35% of GNI* by the end of 2027. While uncertainties remain, this is helping to underpin Ireland’s status as a “safe haven” in sovereign bond markets, with spreads remaining close to all-time lows. Further prudent management of the public finances and a greater recognition of the risks associated with a narrow tax base would help maintain this position.
