Russia’s gas shutdown to Europe poses ‘serious’ risk to Ireland

Russia cutting off natural gas supplies to Europe poses a “serious” risk to Ireland, Finance Minister Pachal Donoghue has said.

Speaking to the Budget Watch Committee, Mr Donoghue said the “global economic shock” caused by Russia’s invasion of Ukraine had “rapidly” changed Ireland’s economic context.

He said the “era of low-cost borrowing” is “clearly coming to an end”.

Discussing the summer’s economic statement, Mr Donoghue said the war could cause further economic problems for Ireland.

Much of the recovery in our public finances is due to the continued surge in corporate tax revenues, up 53% year-on-year

“Another major risk is the possibility of a withdrawal of natural gas supplies from Russia to continental Europe,” he said.

“While we don’t currently view it as the most likely development, it is nevertheless clearly a very real risk.

He said such an event would cause “major economic disruption in export markets” and have a “serious” effect on Ireland.

“So in these very uncertain times, with heightened vulnerabilities, managing public finances prudently and responsibly is a matter of urgency,” he said.

While acknowledging the increase in corporate tax revenue over the past year, Mr Donoghue said it presented a “too benign” picture.

He said: “A large part of the recovery in our public finances is due to the continued rise in corporate tax revenues, up 53% on the year.”

While the increase in revenue is welcome, he said it remains “extremely volatile”.

“To be clear, we welcome these receipts,” he said.

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“They give a good image of Ireland as an attractive destination for highly profitable multinational companies.

“But, as I have warned on several occasions, these revenues are potentially extremely volatile and cannot be guaranteed at current levels in the future.”

Mr Donoghue said more than half of Ireland’s corporation tax proceeds are paid by 10 companies.

“This means that a very large part of our tax revenue is subject to business decisions and a small number of taxpayers,” he said.

He said the government cannot repeat the mistake of using temporary revenue to fund permanent spending “because we know what happens when that revenue disappears.”

“I have therefore asked my officials to consider how much of the current corporate tax yield might exceed what should be expected from our economic fundamentals, which we will report ahead of the budget.

“Identifying this surplus will allow us to avoid basing spending on unreliable income while ensuring that Ireland remains a top destination for foreign direct investment.”

Mary I. Bruner