The OECD is now the latest organisation to take a swing on the economic alarm bell as far as Ireland is concerned, noting in its 2025 economic survey of Ireland that while the country’s economy continues to perform well, it’s facing structural challenges such as housing shortages and an over-dependency on corporation tax that threaten this performance.
Infrastructural challenges, an ageing population and meeting the country’s ambitious climate commitments are all acknowledged early in the report as difficulties to be managed in order to maintain stable growth and high living standards.
Published last week, the Organisation for Economic Co-operation and Development’s (OECD) economic surveys are periodic reviews of national economies, and feature analyses of economic performance, developments and challenges.
While the domestic economy “remains robust”, thanks to strong labour market performance, “risks have risen,” the report’s abstract reads.
“Fiscal prudence is required to address spending pressures from ageing, infrastructure gaps, climate change and housing investment. Enhancing the fiscal framework, boosting spending efficiency, and diversifying tax revenues would improve long-run fiscal sustainability.
“In the context of a rapidly increasing population and rising capacity constraints, addressing investment needs requires effective prioritisation and sequencing across sectors and type of projects. Reducing labour and skills shortages, lowering legal costs, and further easing administrative burdens on businesses would help maintain cost competitiveness. While Ireland has well-developed climate change mitigation and adaptation frameworks, a shift from planning to implementation is needed. Recent policy measures have spurred housing completions, but continued imbalances between housing supply and demand reflect structural impediments to a well-functioning housing market.”
Increasing resilience to shocks
The Irish economy remains resilient despite global shocks and the growth of threats, with the report assessing that a strong labour market has driven domestic economy. This, coupled with easing inflation ensured that the economy as a whole has remained stable thus far, with the OECD forecasting GDP growth of 3.7 percent in 2025 and 3.5 percent in 2026, “as volatility from the multinational sector subsides, financial conditions improve, and goods exports recover”.
On the risks side, the authors write:
“Rising geopolitical tensions, trade protectionism and weaker global demand could weigh on exports. Tighter capacity constraints or renewed pressures on energy and food prices may keep inflation higher than foreseen, weighing on consumption. Delayed progress in addressing capacity constraints in housing and other infrastructure could generate higher and more persistent price and wage inflation and damage competitiveness.”
Ireland’s reliance on corporate tax revenue is highlighted as a potential vulnerability, citing the fact that corporate taxes make up close to 20 percent of total government revenues, and 27 percent of tax revenues. “The share of ‘windfall’ corporate tax receipts, i.e., those that cannot be explained by underlying drivers, is estimated to be 47 percent in 2023,” it states.
The domestic spending rule, that would limit permanent spending increases to 5 percent per year, is described as “welcome,” but undercut by the fact that it has been “systematically breached since its introduction”.
Maintaining the cost competitiveness of the business environment
Labour shortages, and the difficulty of recruiting qualified workers, have increased since the pandemic, according to the OECD, which focuses on the detrimental effect that could have on “the government’s agenda on housing and climate reforms”.
“Labour shortages severely hamper SME activities. About one third of Irish SMEs stated that finding and hiring staff with the right skills has been very difficult over the past two years, while half identified difficulties in hiring skilled employees as their most serious concern, similar to the EU average of 54 percent,” the authors write.
“Applicants’ insufficient qualifications, skills or experience and an outright lack of available candidates are the main reasons for the reported labour and skills shortages, followed by the inability to offer more attractive employment packages than competitors.”
High legal costs and “lengthy” court proceedings serve to reduce competitiveness, with the report suggesting “competition-enhancing reforms” to boost the legal system’s efficiency and help reduce legal costs.
Reducing greenhouse gas emissions and adapting to climate change
The OECD report focuses on Ireland’s “ambitious national targets,” which concern cutting greenhouse gas emissions by 51 percent from 2018 levels by 2030 and achieving “climate neutrality by 2050.
“Ireland is not on track to meet its 2030 targets (with a 7.8% reduction in 2023 compared to 2018) and needs to make progress in putting emissions on a sustained downward trend,” it says. As a result, the authors write, “there is a need to shift from planning to implementation, with a focus on delivery of concrete actions”.
The preparation of “extensive annual climate action plans to monitor progress and assess the actions and budget needed” takes up “significant resources,” they write, concluding that “reducing the frequency of such plans and focusing instead on delivering concrete actions could speed up progress towards targets”.
Additionally, fossil fuel subsidies are targeted as undermining the effectiveness of the government’s green agenda:
“Removing seven major fossil fuel subsidies could reduce emissions by 20% by 2030, with a modest impact on GDP and households (Bruin and Yakut, 2023). Hence, the 2023 review of climate harmful supports, including fossil fuel subsidies (Kevany and Foley, 2023) and the commitment to developing a roadmap for transition away from fossil fuel tax subsidies in the transport sector are welcome,” it says.
Ireland’s rising electricity demand is also addressed, which is attributed to population growth, data centres, and the electrification of heating and transport.
Making housing more affordable and resilient for all
“Housing affordability and availability continue to fall short in Ireland, which affects both the well-being of certain segments of society and the economy’s competitiveness. Recent policies have increased housing completions, but continued imbalances between housing supply and demand reflect structural impediments to a well-functioning housing market,” the report’s assessment of Ireland’s housing market begins.
The construction of new homes fell “far behind population growth” in the wake of the financial crash, the authors write, while home ownership rates have declined from a 2004 high of 82 percent to 69 percent in 2023.
Ireland will require “one of the largest increases in the housing stock between 2020 and 2050” in the OECD, it states, adding that the initial Housing for All targets of 33,000 homes per year did not “fully take into account pent-up demand from the property bust era or a change in household size over time”.
“Hence, it is welcome that the government revised targets for the 2025-30 period to 303 000 new homes by 2030, with an average of 50 500 per year rising to an annual delivery of 60 000 by 2030,” they write.
In light of these analyses, the report’s “key findings” are that:
Fiscal restraint is called for in the near term, while enhancing the fiscal framework, increasing spending efficiency and improving the medium-term resilience of tax revenues are key to ensuring long-run fiscal sustainability.
Preserving Ireland’s cost competitiveness requires reducing labour and skills shortages, lowering legal costs and further easing administrative burdens on businesses.
Speedier implementation of plans and pricing emissions more uniformly across sectors would help achieve Ireland’s ambitious climate targets.
Policies to increase housing density, improve land use and planning, and raise productivity and lower costs in the construction sector would boost housing supply, including for social housing.