Ireland’s Unexpected Windfall

By Padraic Halpin
DUBLIN (Reuters) – The glum faces of Ireland’s finance and spending ministers after hearing the country received an unexpected 14 billion-euro windfall in Apple back taxes earlier this month made one thing clear: Money alone is not the answer to Ireland’s problems.

While France, Britain, Germany, and others struggle to find money for government spending, Ireland’s latest cash infusion is widely seen as an awkward gift on the eve of an expected election.

The problem is that it has shone an unwelcome spotlight on government failure to turn a much larger corporate tax boom into real progress with intractable problems in housing, health, and transport.

The ministers will use Tuesday’s budget to lay out a general plan for how the 14 billion — equivalent to 15% of annual spending — will be invested, with water, energy, and housing projects likely beneficiaries.

However, they are already being criticized by the opposition about their record: a metro system first proposed in the 1990s that has yet to break ground, and a long-delayed new children’s hospital expected to be one of the world’s most expensive.

Their fear is that the hard, slow work economists say is necessary may be a hard sell to voters in an election where polls suggest the coalition government is set to win — particularly as their rivals point out what the money could buy.

Legacy of the Crash

The challenges facing Dublin have roots in the economic crash 15 years ago, which brought capital spending to a standstill due to austerity measures. Despite recent sharp increases in the capital budget, Ireland’s central bank estimates public investment will only recover to 2008 levels in real terms by 2026.

Analysts indicate the failure of institutional capacity to keep up with the demands of a fast-growing economy and population — from a complex planning system to under-resourced regulatory bodies — has compounded the problem.

“We’re out of practice and any muscle you don’t use for a long period of time is going to be harder to get working again,” said Gerard Brady, chief economist at business lobby group Ibec. “Growth is only a problem if you don’t plan for it and don’t resource the systems to deal with it.”

Brady noted that while Ireland has similar bureaucratic processes for industrial projects across Europe, it takes much longer to navigate them.

Former European Central Bank chief Mario Draghi’s recent EU competitiveness report called out Ireland for having some of the longest timelines for completing solar and wind energy projects, for example.

Delay, Delay, Delay

At the Construction Industry Federation’s annual conference this week, money was barely mentioned.

At a time when some EU countries contemplate spending cuts and tax hikes, Ireland stands out with an economy set to grow by 2% this year and a projected budget surplus of around 3% of national income for the third consecutive year.

Instead, construction executives were calling for action to tackle persistent deficits in energy, water, and planning — constraints the National Competitiveness Council recently warned could choke off economic growth.

Despite public spending on homes increasing to the second highest proportionately in the EU, Ireland has its highest ever rate of homelessness, with house prices rising at almost 10% a year, and rents drastically outpacing income growth.

A tight labor market exacerbates the issue, with minimal unemployment in the construction sector and warnings from the country’s fiscal watchdog that Ireland’s appeal to foreign laborers has sharply declined.

Ireland is not alone in facing labor supply challenges: an Ifo survey found 36% of German firms suffer from a shortage of qualified workers. A CBI survey found over two-thirds of UK businesses also encountered labor shortages recently.

The Irish central bank recently warned of major challenges in scaling up from the 33,000 homes built in 2023 to the required 50,000 homes annually by 2050, indicating that significant policy changes are needed.

Long-promised government reforms aimed at restructuring and better resourcing the national planning body, introducing statutory timelines for decision-making, and streamlining court challenges are expected to become law shortly, although some critics suggest they might worsen the situation.

Everyone agrees that rapid change is necessary.

“Unless you fix things, you could end up allocating loads of money to projects and not getting them completed because of planning issues. Just delay and delay and delay,” said Owen Sisk, a senior executive at Sisk, the largest construction service provider in Ireland.

“If you could tackle that, you could unlock a lot.”