Russia switching off the supply of natural gas to Europe presents a “severe” risk to Ireland, Minister for Finance Paschal Donohoe said.
Speaking to the budgetary oversight committee, Mr Donohoe said the “global economic shock” caused by Russia’s invasion of Ukraine has “rapidly” changed Ireland’s economic context.
He said the “era of low-cost borrowing” is “clearly coming to an end”.
Discussing the summer economic statement, Mr Donohoe said the war could cause further economic woes for Ireland.
“A chief further risk is the potential for a withdrawal of natural gas supplies from Russia to mainland Europe”, he said.
“While we do not presently view this as the most likely development, it clearly constitutes a very real risk nonetheless.
He said such an event would result in “major economic disruption in export markets” and have a “severe” effect on Ireland.
“So, in these highly uncertain times, with heightened vulnerabilities, managing the public finances in a careful and responsible way is a matter of urgency,” he said.
While recognising the surge in corporation tax receipts in the last year, Mr Donohoe said this presented an “overly benign” picture.
He said: “Much of the recovery in our public finances is due to the continuing surge in corporate tax receipts, up 53% in the year.”
Although the increase in receipts is to welcomed, he said they remain “extremely volatile”.
“To be clear, we welcome these receipts”, he said.
“They reflect well on Ireland as an attractive location for highly profitable multinational firms.
“But, as I warned many times, these receipts are potentially extremely volatile and can’t be guaranteed at current levels in the future.”
Mr Donohoe said more than half of Ireland’s corporate tax yield is paid by 10 companies.
“This means that a very significant portion of our tax take is subject to business decisions and a small number of taxpayers,” he said.
He said the Government can’t repeat the mistake of using temporary revenue to finance permanent expenditure “because we know what happens when those revenues disappear”.
“I’ve therefore asked my officials to examine how much of the current corporate tax yield may be in excess above what should be expected from our economic fundamentals which we will report in advance of the budget.
“Identifying this excess will enable us to avoid basing expenditure on unreliable revenues while ensuring that Ireland remains a top tier destination for foreign direct investment.”
Green Party leader Eamon Ryan said this moment in time is the “biggest challenge” and the Budget will have to protect people from fuel poverty.
He said it will be clear in two weeks if the nord stream one pipeline comes back.
He said there is likely going to be an emergency meeting of Energy Ministers in the EU at the end of the month to review what’s happening.
He said: “It's a huge problem.
“We're not at a risk on the supply side because our gas doesn't come from Russia.
“But the forward price for next winter is outside any historic comparison.
“This fuel has been used as a weapon of war, and it's designed to cripple Europe.
“And those high prices go across no matter what market you're in.
“The best response is to switch away from a reliance on those sources.
“So to really accelerate, switch to renewables, promotion of efficiency, reduce your use campaign that we've introduced, similar to what they're doing in Germany and elsewhere.
“In the Budget, we'll have to do further fiscal measures to protect people from the fuel poverty that this tactic is going to bring.
“But the real key message the real key strategic response is to stop being able to be held to ransom by Russians or others, because it's their tactics of driving this whole Supply.”
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