Paschal Donohoe has been occupying the same physical office on the ground floor of the Department of Finance since July 2017. And it clearly shows.

Yes, the office carries the usual, expected, formalities of state. But it is highly personalised to own Donohoe’s own distinctive taste and character. Books are everywhere. On his desk. On his coffee table. On his floor.

A copy of Budget 2023 sits on a copy of Ulysses. Besides them is Saving the State: Fine Gael from Collins to Varadkar, a book that tells the story of Donohoe’s own party through the prism of its leaders.

The walls are a mix of striking state-owned artwork and various pictures and mementoes of his own political journey. Some are serious: a 2016 picture of Donohoe with his first budget as Minister for Public Expenditure and Reform is signed by Enda Kenny with the words, “Carpe Diem”, while there are several pictures of cabinet meetings and state functions.

Others are less serious: there are a host of newspaper caricatures, some dating back to his time as minister for transport, as well as a well-documented collection of bobblehead characters that he has been assembling for many years.  

There are also a number of front pages of foreign newspapers bearing his pictures, a nod to his current role as president of the Eurogroup.

However, six years after moving in, Donohoe could well be preparing to move out. The impending cabinet reshuffle is expected to move him one floor upstairs and to the less spacious office of the Minister for Public Expenditure and Reform, essentially switching portfolios with Michael McGrath.

Such a move would jeopardise Donohoe’s chances of re-election to the prime Eurogroup post, a matter of political tension between the two main governing parties. But it will also ensure that Donohoe remains central to Ireland’s budgetary policy.

After all, his fingerprints are on every budget since that of 2016, which he co-authored with his old mentor Michael Noonan.

Much has changed since then. The economy has rebounded to such an extent that the government could unleash an €11 billion package earlier this week without needing to borrow money, while also establishing a new National Reserve Fund.

His tenure in the office has been defined by incrementalism and fiscal prudence; his dominant motif has been that gradual betterment through cautious spending increases and tax reform is more sustainable than big-bang budgets.

“We have to do all of this in a gradual way, and while the steps may be smaller, I want them to be surer,” he told me in 2016, days after delivering his first budget as both minister for finance and minister for public expenditure.

But, in recent years, along with Michael McGrath, he has also had to deliver those big bangs to nurse the economy through a pandemic and a cost-of-living crisis.

So, after six years in this office, what is the state of the economy? And how has the series of budgets that he has delivered, in particularly Budget 2023, impacted the country?


Paschal Donohoe is running slightly late for our interview, delayed by a meeting with Margrethe Vestager. The Executive Vice-President of the European Commission is in town for a series of meeting with government, and one of her first ports of call was the Department of Finance.

As Commissioner for Competition, Vestager has previously been a vocal critic of the tax tactics of multinationals operating in Ireland, leading the commission’s probe into Apple. Her own tactics often brought her into direct conflict with Donohoe.

However, relations have now thawed with Ireland signing up to multinational tax reform proposals.

And it is impossible to strip out both corporation tax and corporation tax reform from Budget 2023. Yes, it was a budget designed to alleviate the cost-of-living crisis. But it was funded largely by a handful of technology and pharmaceutical multinationals.

If you exclude the corporation tax receipts that are estimated by the Department of Finance to be potentially “windfall” in nature, the government’s budget balance is set to register a deficit of €8 billion in 2022 and €3.8 billion in 2023.

As the Fiscal Advisory Council noted in its flash reaction to Budget 2023, corporation tax receipts are expected to account for more than one in every four euro collected in Exchequer taxes, and corporation tax will this year surpass VAT for the first time as the State’s second-largest tax source.

The council gave the budget its imprimatur, saying that its core spending package of around €7 billion was within the appropriate boundaries, and that half of the one-off €4 billion package was targeted. However, it did highlight a slowdown in growth and a rise in inflation, two issues that will impact on future budgets.  

“Expectations that inflation will fall in later years rest on the assumed decline from recent peaks in oil and gas prices. However, there remains substantial uncertainty around how these will evolve,” the council said.

Paschal Donohoe: “I’ve had two defining experiences as a politician.”

The general response to the Budget has been positive. Some specific measures, such as the levy on concrete products and the carbon tax hike, have been controversial, but there has been no major backlash. This is in sharp contrast with the response to the UK minibudget.

This budget increased the size of the state, and Donohoe knows that this must be funded in the long terms when the windfall corporation tax disappears.

In the course of his annual post-budget interview with The Currency, he discussed all of these issues – and much more besides, such as his views on the future of taxation, pension reform and how the increasing number of crises have changed both society and the economy.

We begin, however, with his views on the ongoing turbulence in the UK.

Ian Kehoe (IK): The economic turmoil in Britain has been significant and worrying. Given our close relationship and the amount of trade we do with the UK, how concerned are you?

Paschal Donohoe (PD): We’re monitoring closely what is happening in the United Kingdom at the moment, and the events of the last number of months have reminded me very, very strongly of the shield that is the euro, and how important our membership of the euro area is. What we will do is monitor the developments that take place there, but it provides a further affirmation of the value of running surpluses and having a National Reserve Fund.

And the key feature of our budget is that we have not needed to borrow for anything, and the scale of our one-off package was funded by domestic taxation over-performance. While I know this isn’t an easy sell to make at a time in which living standards are under so much pressure, and prices are rising, I hope there is a context for making that argument to your readers.

IK: It strikes me that there are more and more crises globally. The last three budgets have essentially been crisis budgets between the pandemic and the 2023 cost-of-living budget.

And this leads to a trade-off. You have to deal with the immediate crisis but also plan for the future. How have you balanced that trade-off?

PD: I’ve had two defining experiences as a politician – the first one is the experience of being in an external aid programme, and then the aftermath of trying to get out of one, which indelibly marked me, because of the impact it had on my constituents.

The second one is more recent. What I have experienced is that the unexpected is now happening with a frequency that wasn’t the case a number of decades ago. And when the unexpected happens, the impact is bigger. And that has been the background, as you’ve well put it, for the last three budgets. However, I think emerging from it are a number of strategic themes, within which the opportunity [exists] for our country to get to a better place in the decades to come.

If I talk about our most recent challenge, which is the impact of the change in price and supply of energy and our economies, emerging from that now is the fact that investment in clean and renewable technologies, the return for that will be higher in the future, and there’s a security dimension to doing it. And there’s no reason at all why Ireland can’t be at the heart of that for Europe. Getting ourselves ready to do that now, I think, is equivalent to the FDI impact that our country experienced in the 1990s and 2000s. I see it as being a benefit potentially of that scale. And then secondly, the emerging from the trauma of the two years of Covid – for me there, the opportunity to cement social cohesion through a state that is aware of its health responsibilities and economic responsibilities in a crisis moment, again, I think, is an immense opportunity for our country in the years ahead.

The problem is that crises diminish and crowd out the capacity for strategic planning – and as you and other analysts have commented, strategic planning isn’t always easy for the political system to do anyway. But maybe in reminding ourselves that the Greek roots of crisis also talk about opportunity. Maybe we would be compelled to look at those opportunities in a different way in the time ahead, and I think we will be.

Corporation tax and funding a bigger state

IK: You mentioned that you’ve been able to fund a very significant package without having to borrow. But if one were to take away what the Fiscal Advisory Council call the “excess” corporation tax, it would have been a budget deficit. How concerned are you that the state is getting bigger and the risk over tax is rising also? Long-term, how are you going to pay for this bigger state?

PD: I’ve acknowledged that as being a key potential vulnerability but that is why, particularly since 2019, as our corporate tax receipts have gone up, we’ve never changed our core spending plans, and we’ve stuck to them. It’s also why in the teeth of a cost-of-living, huge pressure that many are facing, the government has decided not to spend €2 billion this year and €4 billion next year.

And we’ve done that in recognition of that risk. But what I would say to your readers, if that if you and I were sitting here this morning, and corporate tax had gone up by €5 billion, and we had used that €5 billion to fund additional day-to-day spending, as opposed to a surplus, that would go from being a medium-term risk to a short-term risk that has already occurred. And I have deliberately avoided that happening, along with Minister Michael McGrath. That is why in turn, we’re now in a position to use this €4 billion and €2 billion to significantly accelerate the de-risking of our public finances.

IK: You talked about international taxation – and it’s changing, and surely it came up in the meeting that you just had with the commissioner. However, how do we de-risk ourselves from corporation tax? After all, the Commission on Taxation and Welfare got a pretty muted response politically. So where do you see the tax landscape evolving to, as we try and de-risk that corporation tax?

PD: There are two areas in which it will evolve – the first one will be carbon taxation and green taxation. I see this as being a significant and needed broadening of our tax base that, even in the heat of an energy price surge, we’ve managed to maintain for another budget and another year. And if you look at our tax code now, if you and I were to be meeting in five years’ time, Ian, I’m convinced that the carbon tax element of it will be far broader than it is now.

And the second one then will be in our PRSI code, where we will have, almost certainly, rates of PRSI that will go up in the time ahead. And if the political system was able to deliver broad, tax-based broadening, through appropriate changes in our PRSI system, and the steady development of carbon taxing, that would have very big revenue consequences, and would be another way in which we are minimising the risk that corporate tax may pose to us in the future. But the bottom line is, that if you are looking at how we are managing this risk, as receipts went up we didn’t spend them, and now that the magnitude of the additional receipts are clear, we’ve put the vast majority of it into a reserve fund, with intense pressure on us to always do more.

IK: And just in relation to that reserve fund. Will it be invested ISIF-like, or will it sit there?

PD: It’s going to sit in short-term – either in cash on the country’s balance sheet, or in short-term government debt. The whole purpose of that is that we would be able to liquidate it quickly if we needed, which indeed we did at the start of 2020, when the scale of the Covid economic shock became clear.

Squeezed middle

IK: In relation to the specifics of Budget 2023, one of the areas that has come up is the squeezed middle – those not earning more than €40,000, but not benefiting from the welfare system either. Did you think these people get left out in this budget?

PD: I do not – the challenge that we have with that wage bracket, if their average rate of tax on the income is 12 per cent, and if you try to reduce significantly the amount of tax they’re paying, we very quickly end up taking people out of a tax bracket and tax base entirely. And I don’t want that to happen either. I still believe, even in the situations that we are in, that we should all make a contribution to the funding of our public services. But this is the reason why I’ve acknowledged that our income tax policy does have limitations, when you are trying to deliver support to workers.

But in turn, this is why we’ve increased the Working Family Payment, it is why we have broadened the eligibility to, for example, the fuel allowance. It’s why we’ve decided to repeat the €200 energy credit three times between now and early 2023 – because we know those things will be of greater value to those who are on lower levels of income.

Bricks and mortar

IK: I have a number of property-related questions. The vacant site tax is self-assessed, and expected to raise just €3 million. Were you tempted to go for something a little bit more muscular?

PD: I think a tax that triples the existing LPT, is administered by the Revenue Commissioner, is a strong tax. The reason why the revenue figure is lower than you might think is because the number of properties that are vacant is lower than the public discourse would indicate at times. There are many, many understandable and legitimate reasons as to why a property could be vacant – it could be about to be sold, the person who was in it might be in a nursing home. And once you strip out what will be accepted as legitimate reasons as to why a property would be vacant, the number of ones that are vacant for reasons that society might have a concern about are a lot smaller than you think.

IK: A big criticism, certainly from the construction industry, relates to the levy on concrete blocks, the Mica levy. Chartered Surveyors Ireland say it’s going to put up the price of a three-bed semi by €3,000 to €4,000. Is that the right thing to do when we have a housing shortage?

PD: I believe there is a case to be made, which I’ll be making for doing this. What’s a bigger risk is pretending that we can spend €2 billion, and not have to have a way of paying for it. And while I do accept and acknowledge the risk that is there, we are about to enter into another debate regarding how we fix and respond back to the legacy of buildings a number of years ago. And we have to acknowledge that there are trade-offs – and if we want to spend more money in the future in addressing these issues, which I accept we should, and we had to help all those poor families and homeowners that were affected by Mica. But we also have to be open and honest with each other, that that money does have to come from somewhere.

IK: You introduced a rent credit, your government having previously been against it. Why?

PD: Because the issue in relation to the number of landlords who were leaving the rental sector, and the increase that this is having on the level of rent that tenants are paying, I accept, was getting more and more difficult. And I think to have a budget that didn’t give recognition to that wouldn’t have been fair.

IK: But nonetheless, there is nothing in there for landlords.

PD: Well, there is a measure that we’re bringing forward in relation to a better tax treatment of pre-letting expenses – that’s about trying to get new landlords in. It’s a measure I was excoriated for last year. But I’m strengthening it, but I also again have to acknowledge all the things that I’m called on to do that I can’t do. I know why landlords are making the case to me that they should pay a lower rate of tax on the rental income they receive, but were we to do that, shouldn’t tenants make the case to have the same? And then in you look at all of the different sectors in our society that are under pretty strong pressure at the moment due to the rising price of living, if we begin saying that one group of our society can have a lower tax on their income, many other groups will make an equally legitimate claim. And we have to tax all income the same.

Energy credits

IK: The energy supports for businesses was a cornerstone of the budget but has got little attention.

PD: It’s bigger than the tax package, it’s bigger than the social welfare package, and it’s the biggest part of the one-offs. It was also very challenging to design, and really took a lot of time in the department, and with the Department of Energy, to craft it. But it is a really significant and substantial intervention in our economy, which we accept is needed, and we believe will make a difference as the year goes on.

Taxing foreign investors

IK: I was really intrigued by your comments around Reits and Irefs – and you also signalled changes around a review around Section 110 and the tax treatment of funds, life assurance and some other investment products. Have you concerns that there’s something going on in many of those areas that shouldn’t be? And what sort of form is this review going to take, what changes do you anticipate?

PD: So, it’s just driven by the fact that the… I think it is important, that when we have in place taxation regimes for particular parts of our economy, that on a regular basis we step back and assess how they’re working. It’s not driven by a concern, a specific concern – but it is driven by the fact that, if these are sophisticated and important tax regimes that we are creating, and if you don’t regularly assess how they are working, you can create other difficulties and challenges in the years ahead. So, that’s why I wanted to do it – it will be led by the Department of Finance, we’ll put together working groups with other departments and regulatory bodies on them – and I hope, and expect, this is work that we will have concluded in advance of Budget 2024.

A territorial corporation tax system

In his budget speech, the minister said he was giving serious consideration to a territorial corporation tax system. I asked him what he meant by this and how far he was willing to go.

“This is something that is going to require an awful lot of work in the time ahead – and what I wanted to do is indicate that we are giving it thorough consideration. But a feature of how we manage big change is that we do it in a transparent and predictable manner,” Donohoe said. “Now, that never means telling anybody what we’re going to do, because that wouldn’t be appropriate either. But it does mean that the FDI sector will have an understanding of the options that we are considering, and aware of the work that’s underway. And because that would be such a big change in our tax code, I felt it was important to indicate that we’re going to give this matter thorough consideration, and that we will be engaging with stakeholders on it to get their assessment of it too.”

Housing policy

IK: The big issue, bar the cost of living, is housing. It is an issue of our time. Given obviously the public clamour for more houses, were you tempted to go with a more robust plan, maybe introduce tax breaks for housebuilding?

PD: I believe that plan that we have at the moment is strong, but I fully accept the public dissatisfaction about where we are, and the need for us to deliver more. And I believe that the best way of making supports available, to deliver more homes, is through grants rather than tax supports. If you bring forward grants, you’ve a better ability to target them, you have a better ability to make sure they deliver the kind of homes that you want. And Minister Darragh O’Brien has received and needs significant additional funding to deliver against the public expectations on housing. And we’re meeting those needs through Exchequer funding, rather than through tax changes.

An intangible world

IK: When we sat down three years ago, one of your big concerns was around societal disconnect emerging in relation to capital and wealth. That if people couldn’t see wealth, how could they feel it – the intangible economy. What is your view on that now, having gone through such a polycrisis, as economists might dub it?

PD: So, I’d be more optimistic. I think that citizens have seen the role of the intangible and digital economy in helping them change their ways of working so fundamentally. And I think that huge digital dimension to our economy has enabled a very profound change in how work is done in our country. And I hope, therefore, we can make the case for that intangible dimension to our economy more strongly.

So, I see that being a very positive development – but it’s also one of the reasons why, if you look at where we are, versus where we would have been four years ago, when we started doing these interviews, it’s also why I ultimately felt that Ireland needed to be part of the solution on corporate tax reform as well. Because, I believe part of the social contract with our citizens, both here in Ireland and abroad, is we can show them that our tax policies reflect the world that we’re in. But I also believe part of the economic contract with large employers here in Ireland is that if when we are delivering that change, we do it in a way that’s understood and predictable to them. So, overall, I feel a bit more optimistic about it.

Locked out

IK: In relation to this budget. If you’re 35, you did well from it – if you’re 75, you did well from it. If you are 25, you didn’t do as well. You are still locked out of the property system and you probably don’t have a pension – even though you will be working longer. What would you say to that generation coming through?

PD: That the very reason we’re moving forward with a very ambitious pension auto-enrolment project is to make sure that they do have the pension in the future that we want them to have. That the reason why we are spending €4 billion on housing is to support those needs.

I’d say two things – I fully understand, and I want to do as much as we can to try to support our youngest adults and groups that are in the very early phase of their careers. That’s why we’ve done what we did on college education, that’s why we want to do auto-enrolment. That’s why the State is going to play an even more active role in the provision of housing, year by year.

We look budget by budget – as if that can be the only solution to every challenge we face, but budgets are mostly about incremental spending, the additional spending – but year by year, and throughout the year, there are many other tools, and many other levers open to government, to try to make progress on these matters, that we use for the other 11 months, and three weeks, and four working days of the year.

And then secondly, while I understand that we want to look at this by age group, and by all the different levels and groups within our society, there’s still a case to be made about the collective sweep of the budget, and the broadest sweep of the budget. I couldn’t help notice, but when I was on Prime Time, there was no mention, no reference, of the overall macroeconomics of where we are, the overall place of our economy and society. It all instantly went to who gets what. And there’s a broader piece to it, that people like Stephen [Kinsella], and I think your paper, understand. Which is that, where are we overall.

IK: And that’s why I made the point at the start about the increased size of the state.

PD:  It does, but the pace of growth of the State is also a key choice in that. And that is why the key economic decision of the budget – the key one – is always the decision that is made before the summer on how big the budget will be. That is the key decision. Because, if you get the scale of the budget decision right, it can then give you flexibility on the need to raise additional revenue. And if I look at where we are in the round at the moment, I think there is a good chance that we will be able to pay for a good share of what we will need to do in the future – but not all of it, through what we could do with carbon taxation, and what we could do with PRSI. It won’t cover it all, but it can cover a share of it.

Where are we now?

IK: So, where are we now, versus when you came into office?

PD: With public finances that are more resilient and safer, with more people at work. We’re in the cooperative centre of global corporate tax reform. And we’ve already shown our ability to absorb the impact of a complete black swan pandemic, and get back on our feet quickly. And I would argue that they are really important, positive qualities about our economy. But at the same time, as minister for finance, in accepting the solemn responsibility for financial stability, and generating the resources that our society needs, of course I’d also accept that we haven’t made the progress on housing that our country demands of us. And we still have to continue to work hard to meet the needs for those who… for all who need our public services to get better. So, I would make the case for what has been achieved, but I’d never diminish what we still need to do better.

IK: In terms of politics and practicalities, how difficult in practicalities compared to other budgets?

PD: This was the most complex budget I’ve done, but I would say still the most demanding budget, was still the first Covid budget. Because, while it is a great quality of human nature, such an important quality that we move on, those moments when we were about to implement a very severe lockdown in our economy, when we were at a moment of such utter, profound global economic uncertainty, that was a very, very severe test for a budget to pass. And that particular budget, which myself and Michael did, where we outlined a medium-term plan for the Employment Wage Subsidy Scheme, where we launched the different Covid reserve funds, it was in the aftermath of doing that, that I became… confident, about our ability to rebound quickly, when we could. And ultimately, if we hadn’t done that, our difficulties now would be a lot greater. So, this is the most complex; but I’ll never forget that budget.

IK: Finally, you mentioned to Stephen last year when he spoke to you that if you were ever moving departments or leaving the office, you would leave behind a letter for your successor. Given that there’s a reshuffle imminent, have you given any thought about what you might put into it?

PD: No – but I will. Because, I believe this is… it’s the greatest privilege of my life, to have been here, and to be here, and to be here in the future, for as long as I am, when the leaders decide. And I definitely have experience of both, of what I’ve learnt – some of it that’s only appropriate to pass on in private. And when that moment happens, I’ll do it.