Governor’s Pre-Budget Letter Published

Central Bank of Ireland has today (13 July) published the annual letter (PDF 3.17MB) from Governor Gabriel Makhlouf to the Tánaiste and Minister for Finance ahead of Budget 2027.

In his letter, the Governor underscores the importance of building economic resilience in the face of heightened global uncertainty and structural economic transitions.  He highlights the need to prioritise five key areas:

• Growing the supply-side capacity of the economy, particularly housing, transport, energy and water infrastructure;
• Strengthening the indigenous business sector to complement foreign direct investment and enhance economic resilience;
• Building fiscal buffers through prudent fiscal policy and rigorous expenditure control;
• Supporting household resilience by enabling greater retail participation in financial markets and improving access to debt and equity financing for domestic businesses; and
• Working with partners to strengthen Europe’s economic infrastructure and to develop a new set of multilateral trading rules that deliver certainty and stability.

"Ireland's economic performance presents reasons for optimism but also clear reminders of the need for vigilance," Governor Makhlouf said. "Sound policy decisions today can help steer the economy through a turbulent international environment, deliver sustainable economic progress and build the resilience that the country needs."

The Governor warned of emerging fiscal pressures, noting that current Government projections show expenditure growth outpacing revenue growth in the coming years. "If expenditure overruns persist, the underlying budget deficit could rise to €25.7 billion or 5.8 per cent of GNI* by 2030. This would deplete fiscal buffers, limiting capacity to respond to future negative shocks, while adding to domestic inflationary pressures," he cautioned.

A key concern is the increasing reliance on corporation tax receipts, which now account for 23 per cent of total general government revenue, up from 12 per cent previously. The Governor noted that just 10 companies were responsible for 56 per cent of all corporation tax receipts in 2025.

“While corporation tax receipts are likely to increase further in 2026, I am concerned about the long-term sustainability of the current high levels of revenue. A broader tax base is needed to help mitigate the risks from a possible loss of corporation tax receipts and to fund known spending pressures," Governor Makhlouf said.

The Governor also commented on delivery of public investment, noting that Government has doubled its nominal public investment since 2019, and that this investment is potentially transformative.  He said: “Addressing infrastructure deficits in a timely manner would help to reduce inflationary pressures, and reducing fossil fuel dependency will build resilience and contribute to meeting emission reduction targets. Achieving value for money is difficult in an economy at full employment and in the face of externally-driven cost shocks, but expenditure discipline, combined with prioritising public projects that yield the largest spillovers to the private sector is key to delivering gains from planned investment.”   

The Central Bank is also calling for an effective, binding, domestic fiscal framework based on four guiding principles: sustainability, economic cycle smoothing, simplicity, and a balance between flexibility and discipline.

The Governor concluded: "Above average growth since 2021 has benefitted the public finances.  Combined with surging corporation tax revenue, the headline budgetary position has been in surplus since 2022, despite large expenditure increases and some tax cuts. 

“However, this favourable headline position rests on somewhat unstable foundations.

“Our current economic conditions present a window of opportunity to strengthen the fiscal framework. But this window will not remain open indefinitely."