The Irish Fiscal Advisory Council clearly knows a lot about economics and the public finances. However, the state’s budgetary watchdog also knows a fair bit about stretching a metaphor.

Its recent pre-budget submission was a play on Charlie XCX’s most recent album cover, “Brat and it’s the same but there’s three more songs so it’s not”. The budget advisory body’s version? “Spending rule and it’s the same but there’s three years of it being broken so it’s not.”

Its flash response to that budget, meanwhile, was led by a cartoon of a tree brimming with golden apples, a not-too-subtle nod to the State’s Apple bounty. Speaking of bounties, the council’s 2024 fiscal assessment report, published in late December, was entitled “Ireland’s bounty”, and carried a picture of an old merchant sailing ship. “The real danger is that budget policy has lost its anchor,” the council warned. Anchor? Bounty? Get it?

However, regardless of the cultural or historical memes, the message from all three documents has been worryingly ominous. Ireland, funded by a swell of corporation tax receipts that are becoming ever more volatile and ever less certain, is repeating past mistakes (pumping billions into an economy that is at full employment) and stoking inflation.

They are not the only missed warnings. The Central Bank has published a glut of gloomy missives over the past number of years warning about everything from Ireland’s overreliance on foreign direct investment to the perilous state of the commercial property market.

If a downturn is to come, no one will be able to claim they were not warned. If anything, the impact of the warnings has been blunted by their frequency and consistency.

But in an environment marked by heightened global uncertainty, the threat of Trumpian trade tariffs, and a stagnating Europe, those warnings are more valid than ever before.

That is what makes the current Programme for Government negotiations so crucial. As Pat Rabbitte, a wily political operator, recently reminded me, you don’t have to do everything listed in a Programme for Government, but it is practically impossible to get something done if it is not in the document. 

Given the threats facing Ireland and its economy, our policymakers need to be bold and propose some big ideas. The electorate might have returned the two main parties of government, but it is clear that “more of the same” will not suffice over the coming years. The threats are simply too large, and the structural changes being advanced too significant.

Ireland’s budgetary strategy, one marked by gradual incrementalism and political certainty, has served the country well. That is unquestionable. But what is questionable is whether an economic model of “steady as she goes” can survive a hurricane.

In the coming weeks, Donald Trump will be sworn in for his second term as US president. Trump is that hurricane.

It is far from clear what type of policies he will actually implement, but what is clear is that the rules of engagement will be changed radically. The talk so far has been about tariffs and tax cuts. But both are likely to form part of a larger package of measures, which Trump’s team intend to use to rebalance the US terms of trade, something Peter explained forensically last week. 

In the world according to the incoming US treasury secretary Scott Bessent, tariffs are an external way of imposing structural reform. This is important. The new administration is not simply content to change how the US plays the game. It wants to change the rules. 

This is the environment Ireland now finds itself in. Taoiseach Simon Harris has accepted Trump’s campaign promises will impact this country. In an opinion piece for The Irish Times last week, in which he said Ireland needed to scale up its diplomatic efforts in the US, he said that the “possibility of an international trade shock through tariffs is very real and a small, open economy like ours would be susceptible to the fallout”.

He added: “Ireland has no time to waste.” He is not wrong. As the Central Bank warned in its Q4 bulletin last month, lower Ireland-US trade flows as a result of tariffs (or other changes affecting the activities of US multinationals) in Ireland – could lower “net exports, domestic investment, employment, tax revenue and economic activity more broadly relative to the central forecasts”.

Put another way, no sector of the economy is immune to a rebalancing of the relationship between Ireland and the US, as Dan outlined last week.

How could it not? 

The US accounts for just over 20 per cent of Irish total exports (29 per cent of cross-border goods exports) and just over 40 per cent of Ireland’s total imports (16 per cent of cross-border goods imports). From a labour market perspective, US companies account for almost 10 per cent of business employment in Ireland (35 per cent of all foreign multinational business employment), with these jobs typically being in higher-paid sectors such as pharma, medtech and technology.

In 2022, as the Central Bank noted in a recent report, approximately 70 per cent of the stock of FDI on an ultimate investor basis was from the US, and “growth in overall FDI has been primarily driven by developments in US FDI over the years”.

In its recent analysis, the Central Bank sought to outline how changes to the US corporation tax rate or the imposition of tariffs would impact Ireland. It is complex and multi-faceted but the end result is not good: Windfall corporation tax would diminish and core industries such as pharma would be heavily impacted.

As the Central Bank put it, in addition to the “potential immediate effect on excess corporation tax, a combination of tariffs and/or changes in corporation tax regimes would likely, over time, lead to lower levels of economic activity generally, as illustrated in the modelling exercise”. 

It added: “In the absence of mitigating policy measures, it could be expected that underlying corporation tax receipts, labour taxes and other tax heads such as Vat would be negatively impacted.”

Summing up the issues, the bank said that the “medium-to-long-term implications of possible geoeconomic fragmentation, especially as that may alter the relationship between the US and EU, are unlikely to be positive for a small open economy such as Ireland”.

Predicting what Trump, a predictably unpredictable politician, will do is notoriously difficult. In a recent interview with Dan Mulhall, I asked the former Irish ambassador to the US how Ireland would navigate the threat of tariffs and tax cuts. 

“Difficult, but not impossible. Challenging, but manageable,” he said.

The way Mulhall sees it, the worst-case scenario on tariffs was unlikely to come about. “If that were to happen, I think would it be so damaging for the American economy, so damaging for the American stock market, so damaging for Trump’s reputation in America, so damaging to his followers in America, that I just don’t think he could possibly sustain that kind of damage,” Mulhall said.

When I put the same question to Feargal O’Rourke, the former PwC managing partner who is now chair of IDA Ireland, he offered a nuanced view and put Trump’s proposals within a wider international context. “Am I paranoid about new countries in the Middle East offering money and what US changes could bring? Of course, I am. We have to ensure as a country that we are doing our best,” he argued.

O’Rourke is right. In the coming days, the Screening of Third Country Transactions Act 2023 will come into effect, legislation that will put the onus on Ireland to be more critical of FDI deals coming into the country.

Jonathan teased through the detail of the new rules which form part of a wider political objective from the EU in relation to inflows of capital

In its analysis of the new regime, the law firm Arthur Cox described it as a “significant development in the regulatory landscape in Ireland”.

Equally, the Central Bank was quick to emphasise in its recent bulletin that Trump was not the only forward-looking danger. 

“Trade policy uncertainty remains at historical highs,” it said, explaining that this was in large part due to the many elections that took place last year in an already unstable geopolitical environment. 

“The outcomes of these elections have led to concerns of a possible shift towards more protectionist trade policies. This increased protectionism risks a fragmentation of the world into blocs, which could result in a trade war and a ‘race to the bottom’ in tariffs. Ireland, as a small, open economy, is exposed to lower international trade and lower foreign demand and investment,” it said. 

The world is changing. Ireland needs to change too. Steady as she goes is no longer enough.

Elsewhere last week…

A bidding war, missing documents and a “sham” trust are among the claims dogging the contested sale of the 750-acre estate in the heart of the Golden Vale. Last week, Francesca told the story of John Magnier, Maurice Regan and the battle for the Barne estate.

The EPA has ramped up its enforcement of the midlands peat industry in the past 24 months. Big players are feeling the pinch and smaller ones feel caught in the middle of the enforcement battle. The future looks shaky for those businesses digging up Irish bogs, as Niall reported last week in a major piece of work.

Gerry Maguire built the Laurence Town Centre in Drogheda at a cost of €120 million, supporting hundreds of jobs. A religious man who passed away in recent days, he was one of a group of developers assembled to try to save Anglo Irish Bank. Tom reported on his career in business.