The climate-fiscal timebomb: Ireland

Fiscal outlook

Ireland recorded a 4% budget surplus in 2024 and debt below 38.3% of GDP. It is a specific case and reflects windfall corporate-tax receipts from multinationals and an inflated GDP measure that overstates the real size of the economy.

Deficit measures the level of borrowing in a given year. Debt-to-GDP compares the total public debt to the size of the economy. Both are currently used to determine how much borrowing a member state is allowed to undertake. However, neither measure in itself determines a government’s capacity to sustain higher levels of public investment. Fiscal sustainability depends on growth, the multiplier effects of investment, interest rates, inflation, the structure of the economy and external risks such as climate change. NEF advocates moving away from strict numerical debt targets.

Rising climate costs

As an island nation, Ireland is particularly vulnerable to climate change, as evidenced by recent severe storms. During Storm Éowyn, Ireland experienced its strongest ever recorded gusts, leaving 725,000 properties without power and around 138,000 people without water. The country is particularly vulnerable to rising sea levels and flooding, as around 40% of the Irish population lives within a few miles of the coast. This is also where a lot of important infrastructure that Ireland’s economy depends on is concentrated. Key industries such as tourism, fisheries, and aquaculture would be particularly vulnerable to disruption. The Environmental Protection Agency has therefore identified nine risks requiring urgent attention within the next five years, relating to the disruption of energy, communication, transport, and building infrastructure.

What NEF’s modelling shows

Organisation for Economic Co-operation and Development (OECD) projections show Ireland’s GDP declining by 10% by 2050 and 14% by 2070 under current policies. Our modelling shows the following:

• Under current policies (BAU – business as usual), Ireland’s debt is 20 pps higher than the climate-agnostic baseline in 2050 and 73 pps higher in 2070.

• With early EU mitigation and sufficient adaptation spending, debt is 9 pps higher in 2050 and 7 pps in 2070.

• Delayed EU investments and insufficient adaptation results in higher debt levels of 22 pps in 2050 and 33 pps in 2070.

• EU early action combined with global cooperation results in 2 pps lower debt levels than the climate-agnostic baseline in 2050 and 18 pps lower levels in 2070.

• Progressive taxation, such as a wealth tax, combined with EU early action would reduce debt by 1 pps in 2050 and by 15 pps in 2070 compared to the climate-agnostic baseline.

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