Consumers face the threat of higher food prices with inflation remaining above 3% next year, according to the Economic and Social Research Institute.
With the Budget a week away, the organisation also warned the Government looks set to break its own spending limits as the Department of Health’s expenditure exceeds forecasts.
The ESRI also said that multinational activity was not only propping up corporation tax but also resulted in higher income tax and VAT.
It means the dependence of the public finances on large US tech and pharma companies is broader than many economists have suggested in the past.
The ESRI said this was “compounding concerns” about the “fragility” of Ireland’s tax base.
It said the concentration of highly-paid employees in foreign owned companies resulted in elevated levels of income tax to the State.
It said the fact that the Government is spending most of the corporation tax from multinationals, is having second round effects and adding to VAT receipts.
It called on the Coalition to wean itself off “windfall” corporation tax receipts, which relates to activities by multinationals outside Ireland, and run a bigger surplus this year.
On housing, the ESRI warned there was a “downward trend in planning permissions, which has been evident for a number of years.”
It added to get close to the sustained production of 50,000 to 60,000 homes annually, seen as the necessary level to address pent-up demand, planning permissions would need to rise.
It is forecasting that 39,200 homes will be built this year and 40,500 will be completed in 2027.
On the public finances there will be spending overruns again this year despite promises by the Ministers Simon Harris and Jack Chambers to keep expenditure within limits published in the Medium-Term Fiscal and Structural Plan.
The ESRI said health expenditure is 8.9% higher in the first eight months of this year compared to 2025 which it said is “substantially higher” than the full year estimate of 5%.
The Department of Social Protection is showing an increase of 7.4% versus an estimate of 6%.
On the national debt, the ESRI said Ireland faced the prospect of higher interest rates on its borrowings.
Earlier this year, the National Treasury Management Agency said the interest bill will increase from €3bn last year to €6bn in 2030.
But the ESRI said these projections might “understate” the increase in interest rates as bond yields have risen internationally with the US ten-year treasuries now trading at 5.2%.
The interest rate on Irish bonds is currently 3.7%.
The ESRI forecast inflation will be 3.6% this year and 3.3% in 2027.
It said there was a risk of unexpected weather events adding to food price inflation as Ireland imports much of its food.
Alan Barrett, research professor at the ESRI, said: “The economy continues to perform well, but we remain concerned about some troubling international trends.”
He added: “The ongoing conflict in Iran continues to lead to higher energy prices and central banks are increasing short-term interest rates in response. But market dynamics are also leading to increases in longer term borrowing costs for governments, including Ireland.”
Mr Barrett said that AI investments are providing a positive boost to the global economy, but there there were “risks” if returns on the investments were lower than expectations.
