Election 2024: How Housing and Economic Strength Are Shaping Ireland’s Future
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Entering the 2020 General Election the Irish economy faced a rapidly increasing housing shortage. It was so extreme that a generation of citizens risked never owning their own home. The electorate firmly believed that the housing shortage was a result of government complacency in addition to asset managers ability to bulk purchase homes, thus crowding out first time buyers. Such a scenario presented the largest opposition party, Sinn Fein (SF), with a niche proposition for the electorate; they would fix the housing crisis. As a result, SF obtained the highest percentage of first preference votes. However, unable to form a coalition, the party would remain in opposition for the following four years.
Earlier this month, An Taoiseach Simon Harris dissolved the 33rd sitting of the Dail and called for a General Election. Polling day is scheduled for 29th November. Enabling this was the final piece of government legislation, the Finance Bill, being passed by the Seanad. Successful enactment of the bill is tantamount to the Government running full term and thus enables the calling of an election ahead of March 2025. Four years on, the issue of housing supply remains the focal point of government debate and one of the key issues concerning the electorate. Having said that, the issue is far less pressing today thanks to a more proactive approach from government following their 2020 election scare. This has bolstered support for the two main political parties, Fine Gael (FG) and Fianna Fail (FF). At the same time, SF have struggled to find their new niche and have subsequently seen their support slide from a high of 36% mid-2022 to just 18% today, according to recent polls. In addition, in the first televised debate among party leaders both FG and FF categorically ruled out the proposition of entering a coalition with SF. Without the support of at least one of the main parties, SF’s ability to form a government would be an almost impossible task.
In addition to obtaining some semblance of control over the housing supply crunch, the current government concludes its tenure at a time of unprecedented economic riches. The latest Exchequer figures for October highlighted broad based strength in tax receipts with year-on-year growth of 15%. With the economy at full employment both income tax and VAT receipts remain well underpinned but, it is the strength of corporate tax receipts that continue to dominate headlines. Notably, as at end October, corporate tax receipts are up 36% on last year and stand at €21.4 billion. The Government estimates that a total of €37.5 billion in corporate tax receipts will be collected this year, including €8 billion of the € 14.5 billion due from the Apple Tax case. As such, a General Government surplus of €23.7 billion is expected for 2024. At the same time however, expenditure overruns are becoming commonplace. With an ever-growing need for capital expenditure to ensure the sustainability of economic growth over the long-term, what the next government is likely to be judged on is delivering value for taxpayers.
One common thread binds together the world’s largest economies: the need for increased government expenditure. The same is true for Ireland and each party recognises the need for investing in capital projects – so there is little that differentiates their promises to the electorate. In any case we do not expect any party to exhibit a tendency for fiscal imprudence and as such we see minimal risk of unanchored expenditure, despite the growing needs. As a result, we do not see Irish bonds losing their appeal due to election jitters.
Similarly, the recent Presidential victory for Donald Trump has been posed as a high risk for the Irish economy. Most notably, Trump’s pledge to reduce the corporation tax to 15%, matching the Irish rate, has been seen to threaten the ability of Ireland to attract and retain foreign direct investment. We are more sanguine around the implications of a Trump presidency given the level of investment US corporations have already undertaken in the state and our proximity to and, good standing with, the European Union. While there may be some risk to the registration of Intellectual Property rights should the President-elect usher in the lower corporate tax rate, a four-year term is likely too short a period for any corporation to make significant divestments from their Irish operations. With that in mind, Investor sentiment remains remarkably positive towards Ireland with renewed demand for Irish bonds seen across the curve in recent weeks. Limited supply needs for 2025, regardless of the election outcome, will likely ensure current sentiment holds into the new year.