Ireland's fiscal success faces the risk of over-reliance

Taxation is a classic lever for attracting investment. In Ireland, it has helped transform the national economy, although it has also created a budgetary dependence that is increasingly worrying policymakers.

As early as the 1950s, Ireland introduced a tax exemption on exports and began opening up its economy. Major pharmaceutical laboratories gradually set up plants there, but the real shift in the model occurred in the mid-2010s. The country was no longer just seeking to attract production capacity; it wanted to capture more value-added.

Thanks to reduced rates on profits related to intellectual property and tax deductions for the acquisition costs of intangible assets, many multinationals began reporting a significant portion of their profits on Irish soil.

This evolution became particularly visible in 2015, when Irish GDP jumped by 26% after Apple relocated profits linked to its intangible assets. Ireland was already well-positioned to attract these companies: it possesses a skilled workforce, particularly in the pharmaceutical field, is English-speaking, and benefits from its membership of the European Union.

The cluster effect also played a major role in the pharmaceutical sector. Once Pfizer, Eli Lilly, MSD, Johnson & Johnson, AbbVie, or Bristol Myers Squibb were established, suppliers, subcontractors, talent, and regulatory expertise followed. The sector now employs 2.7% of the national workforce and is growing three times faster than the rest of the economy, with a 15% increase over two years.

In 2024, the pharmaceutical industry accounted for 15% of Ireland's total corporate tax revenue, following a peak of 24% in 2022, driven notably by vaccine-related profits. The sector also represented 6.7% of total tax receipts in 2024. More broadly, multinationals generated 88% of corporate tax, while the top three contributors accounted for nearly half. The Irish Times reportedly identified these three groups as Apple, Microsoft and Eli Lilly.

Between the rising profits of the country's largest taxpayers and the increase in the corporate tax rate from 12.5% to 15% by 2026, these figures are likely to be raised. In 2025, this tax already represents nearly a third of the total tax revenue collected by the State. A change in strategy by a single major contributor, or a small number of them, would therefore have major budgetary consequences.

Beware of dependency

This success places Ireland in a position that is both enviable and fragile, within a context marked by the return of industrial sovereignty policies and trade barriers.

Furthermore, the United States is a critical market for the Irish economy, and the pharmaceutical sector is among Donald Trump's priorities regarding industrial reshoring and purchasing power. Of the $73bn in Irish exports to the United States, $58bn come from pharmaceutical products.

The White House has recently adjusted its tariff policy on pharmaceutical products to encourage the repatriation of investment. Donald Trump has reached agreements with 17 major groups in exchange for 3-year exemptions on customs duties applied to imported medicines. These agreements vary by company but generally include price reductions, distribution via the Trumprx.gov platform, and, crucially, significant investments in the United States.

Laboratories are thus giving Donald Trump what he demands to maintain frictionless access to the American market, namely investment and industrial capacity on US soil. For Ireland, the risk is not necessarily an immediate flight of existing activities, but a gradual shift of future growth.

The Irish State is not, however, being reckless. Public debt represents about 40% of GDP, and the country is saving a portion of a tax windfall that is expected to normalize over time. However, dependency remains strong. Excluding exceptional revenues related to multinationals, Ireland would post a budget deficit of nearly €14bn this year.

Corporate tax receipts now represent nearly a quarter of tax revenue, almost double the average of the last two decades. At the same time, public spending continues to rise, and the share of this windfall set aside is expected to drop from 32% in 2025 to 15% this year, according to the Irish Fiscal Advisory Council.

Ireland still has fiscal mechanisms to incentivize multinationals to remain under this regime, as well as durable structural assets to maintain a high level of foreign direct investment. However, the State faces growing criticism over the exposure of its budget to decisions made in Washington and a few boardrooms in Silicon Valley.