JUST OVER A decade ago, when Ireland was still in the teeth of the recession, we struck oil – or at least we thought we did.
Dublin-based company Providence Resources announced it found a field which could generate about 300 million barrels of the black stuff.
Its CEO said it marked the start of an Irish oil industry, one which would generate billions of euros for the cash-starved state.
To make a long story short, that never happened. The fuel is still in the sea. To this day, Ireland has never extracted a drop of commercial oil.
But coincidentally, Ireland did effectively strike oil around the same time; it would just take a while to realise it.
In 2014, Ireland collected €4.6 billion in corporate tax. In 2015, that figure spiked to almost €7 billion.
From there, it’s been one of the global economic stories of the decade. In 2024, the Irish state took in a staggering €28 billion in corporate tax – and that’s not including the massive Apple payment.
That’s an extra €20 billion or so per year compared to what we took in a decade ago. No one predicted this.
The enormous windfall is essentially the equivalent of the state striking oil, more money falling into our laps than finance officials ever dreamed of.
Now the question is: what do we do with it?
Shovelling money
The answer tends to boil down to one of two options: save it, or spend it.
Of course, it doesn’t have to be all-in, one way or the other. We can save some of the money, while using part of it to cover urgent spending – say for a major infrastructure project.
The problem, according to experts, is that we’re leaning far too much towards spending.
During the week, the Irish Fiscal Advisory Council (IFAC) said the government is shovelling all this money out almost as fast as it’s coming in.
It said the share of corporation tax that is being saved will drop from 32% in 2025, to 15% in 2026, as public spending rapidly increases.
So of all the extra billions we’re taking in, only 15% of it is being set aside. The rest is being spent almost immediately.
What’s worse, the extra money isn’t being used on one-off measures, such as building roads or train lines.
Much of it is going towards ‘day-to-day spending’. This is recurring public expenses that must be funded every single year. Like public sector salaries. Or running the HSE.
Putting the windfall towards this makes the state heavily reliant on corporate tax to keep everything running smoothly. If it suddenly dropped, the government would face a major hole in its budget.
On top of that, ‘day-to-day spending’ is, as the name implies, transient. Once the money is gone, that’s it.
Essentially, we’re being warned that we’re in danger of frittering away a once in a generation windfall.
Norway example
To return to our earlier analogy, we actually have a nice example of the ‘save versus spend’ dynamic in how two countries dealt with big oil finds: the UK and Norway.
In the 1980s and 1990s, both got big tax windfalls thanks to enormous oil reserves off their coasts.
Norway decided to save. It started investing the money in the late 90s, transforming the money into the world’s largest sovereign wealth fund.
Today, that money is worth a staggering $2 trillion (€1.7 trillion).
To put that in perspective, Ireland’s total expenditure in 2026 is €132 billion. Norway’s fund could cover the entire country’s spending for about 13 years.
It is an enormous amount of money for a country of 5.6 million people – coincidentally, about the same as Ireland.
Because the fund is now so large, it has become practically self-sustaining. Norway has strict rules in place, so that only about 3% of the money can be used in a given year.
The fund generally expects to generate a return of 3% a year. The idea here is that only the ‘extra’ return is used, leaving the principal to keep growing.
Three per cent of $2.1 trillion is $63 billion (€55 billion), equivalent to well over a third of Ireland’s annual budget.
You get the idea; by investing, Norway now has an enormous pool of money which has gone a long way to securing its economic stability.
The UK also got an enormous amount of money from oil. Revenue flowing into the Exchequer from production in the North Sea peaked at over £12 billion in the mid-80s.
However, the UK didn’t set up a specific fund for the money. Instead, it was mixed with general government income.
Because the money wasn’t specifically set aside, it’s hard to say exactly where it went. But most studies agree that it was largely used for ‘day-to-day spending’ (sound familiar?).
This largely would have covered funding for public services, such as the NHS, and to keep taxes lower than they otherwise would have been.
Rainy Day Fund
It’s estimated that if the UK had instead saved and invested the money, it would have had an enormous fund of its own.
Its potential value is hard to say. Ine estimate put it at £354 billion in 2018. Another claimed it could have been as high as £850 billion as of 2014, meaning it could be close to the value of Norway’s fund by now.
Of course, there are a few caveats. Hindsight is 20:20, and estimating how large a fund could have been is a tricky business. Who’s to say exactly what it would have invested in, and how those investments would have fared at the onset of the 2008 financial crisis?
There’s also the obvious fact that the UK has a much bigger population than Norway – about 70 million people. That means a $2 trillion fund doesn’t go nearly as far.
But the principle is still the same. The UK likely would have been in a better financial position now if it had invested the money, rather than spent it.
To be fair to the Irish government, it hasn’t completely thrown caution to the wind. In 2019, it established a ‘Rainy Day Fund’.
This was then changed into two new funds last year, which collectively are meant to function similarly to Norway’s, and represent investments of Ireland’s ‘windfall’.
But to go back to the point around balance, the key criticism from the likes of IFAC is that we’re not putting away nearly enough.
It’s expected there will be €16 billion in the funds by the end of 2025.
This might sound like a lot. But when we’re taking in almost €30 billion annually in corporate tax, we can see the fund isn’t as big as might be expected, considering it was started over five years ago.
The basic worry is we’re putting our pennies into the piggy bank. While using our pounds on ‘day-to-day spending’.
It’s not an easy balance to get right. Taoiseach Micheál Martin correctly pointed out that there are constant calls for the government to spend more, across a huge variety of areas.
But the government’s job is to govern. If the right thing to do is invest the money, then that’s what it should do.
Public spending has ballooned in recent years, with the suspicion that there’s largesse in certain areas.
The HSE is a particular point of concern, overrunning budgets like clockwork. This is all enabled by ‘windfall’ corporate taxes, which are single-handily keeping Ireland’s public out of a deficit.
IFAC made things explicit. Ireland faces a choice on how to use its massive corporate tax receipts. “The Government should treat [it]… more like Norway treats its oil – as a high-risk, finite resource,” it said.
Or we could follow the UK’s lead and just keep spending. Our oil well might just keep flowing. But there’s also the risk that it runs dry.
