How much of the Apple tax windfall should we allocate to defense?This is a pressing issue for the newly formed Irish Government, primarily due to the significant shifts in the security landscape caused by the Ukraine conflict, as well as the bold agenda of the new US President, Donald J Trump.
With sixteen billion Euro unexpectedly available to the Government at this critical juncture, the question arises: how much should be invested in the military?
None of it? Half of it? All of it?
Ongoing personnel expenses and maintenance, along with replacement costs, are set to rise from their current alarmingly low levels—this is an assured outcome of Government decisions.
Additional funding will likely be necessary if a national resilience strategy comes into play.
How can we enhance a vulnerable nation’s resilience against natural disasters, traditional warfare, and more specifically, the evolving paradigms of warfare: cyber, hybrid, and psychological? Where will the funding originate?
The urgency of this question has escalated this week, fueled by remarks from the Trump administration concerning trade, taxation, industrial policy, defense directives, and the introduction of a plan to bring an end to the war in Ukraine.
The President’s peace proposal could be summarized as “we will erect a wall through Ukraine, and Europe will foot the bill.”
Discussions between US Vice President JD Vance and Ukraine’s President Volodymyr Zelensky took place in Munich.
The specifics of this proposed peace arrangement, as delineated by the President and his advisors, is inciting considerable anxiety among European leaders, propelling many to confront issues they have long deferred—especially defense expenditures and energy policy.
These are pivotal factors for the EU’s economy, which has struggled for two decades, grappling with the financial crisis, the conflict in Ukraine, the resulting energy crisis, and the sluggish progress towards mobilizing European wealth for domestic investment through the capital markets union—a name change that signifies a lack of advancement.
The newly formalized communication between the US and Russia—symbolized by a lengthy telephone conversation between Vladimir Putin and Donald Trump—has triggered many decision-making processes in Europe that have been maturing over the last decade.
Trump insists that Europe must increase its defense spending.
The notion that Europe ought to bolster its defense budget was jolted into action by Russia’s annexation of Crimea in 2014, leading NATO states to establish a target of 2% of GDP for defense spending.
Of course, Mr. Trump has taken credit for the subsequent increases, justified complaints regarding the EU’s previous laxity.
This all changed following the full-scale Russian invasion of Ukraine—which, as he frequently reminds, happened under Joe Biden’s presidency.
The full-scale assault on Ukraine served as a wake-up call for Europe, urging increased defense expenditure.
Now, Mr. Trump is back, advocating for Europe to commit to sustained increased defense spending and to avoid reverting to prior levels.
Moreover, he expects that the additional defense budgets will primarily be spent on advanced American weaponry.
This is why he has proposed that European nations deploy troops and military resources into Ukraine to safeguard Ukrainian sovereignty after a potential peace agreement with Russia—which, notably, may involve territorial concessions for Ukraine, although the extent remains undecided.
Later, the administration suggested it could provide logistical, intelligence, and weapon sales support to European allies. Additionally, they would like to sell advanced weaponry to Ukraine, but only in exchange for half a trillion dollars’ worth of rare materials.
This arrangement could be interpreted as a potential joint venture, affording the US a commercial stake in Ukraine—almost like a security guarantee that essentially finances itself.
This illustrates the transactional mentality that has emerged in Washington lately, highlighted by discussions of reciprocal tariffs, premised on the belief that the rest of the world has been taking advantage of the US and must “contribute equitably.”
Trump critiques Canada for its low defense spending.
Defense is an essential component of this perspective. In a recent press conference where he criticized EU nations for imposing VAT on American imports, Donald Trump explicitly connected tariff and trade policies with defense strategies, particularly singling out Canada (a real underperformer in meeting the NATO 2% spending target) for its inadequate defense investment.
“Canada has been tough on military spending because they maintain very low military expenses. They presume we will protect them with our military capabilities, which is unjust. Thus, I believe Canada will be a compelling situation since they wouldn’t need to pay taxes at the current rates—perfect military protection would be assured in return.”
Mr. Trump has voiced that “Ireland lacks the capabilities to secure the undersea cables that yield massive corporate tax profits, or even the airspace above these vital connections.”
He remarked, “I have spoken to ‘Governor’ Trudeau many times, but we’ll see how things unfold. Canadian citizens would pay significantly lower taxes while enjoying optimal military protection.”
Consequently, Mr. Trump perceives the trade deficit with Canada as a subsidy and hints at inadequate defense contributions from a NATO ally tasked with overseeing the Arctic region and Greenland—territories that have garnered increased strategic attention amid the ongoing ramifications of climate change, the retreat of ice caps, and an ongoing search for scarce minerals and metals.
US President Donald Trump with Canadian Prime Minister Justin Trudeau in 2019.
What then should he think of Ireland, which similarly has a substantial goods trade surplus with the US but faces a gigantic service trade deficit—largely facilitated by the essential undersea data cables linking Ireland with both the US and continental Europe?
Ireland currently lacks the means to protect these cables, which are crucial for acquiring its significant corporate tax revenues, or the airspace above them.
The Irish defense budget stands at 0.2% of GDP.
Unlike Switzerland or Austria—let alone Sweden or Finland before their NATO membership—Ireland does not practice armed neutrality. Furthermore, it is not integrated into any defense alliance that might allow it to delegate some responsibilities to others, akin to Iceland or the Baltic states.
While Ireland’s defense budget is not 2% of GDP, it is minuscule at 0.2%.
And yes, I acknowledge that GDP does not accurately represent the nuances of the Irish economy, but it remains the standard against which all nations are measured internationally, including Mr. Trump’s assessments.
Increased defense spending amidst a housing crisis (which afflicts several advanced economies, particularly the US, where there is a significant schism between housing demand and availability) necessitates extracting greater value from current expenditure lines—pushing further for efficiency gains and ensuring value for tax money.
Boosting defense spending could generate employment opportunities in military roles, especially in high-tech military sectors.
An uptick in defense spending would generate job opportunities in military sectors (Photo via RollingNews)
The domestic technology industry also foresees growth stemming from research investments and defense contracts, as these technologies rely on and enhance and necessitate advanced technical skills and expertise.
This sector of industrial policy has been a critical but often neglected component for over three decades in Europe, now elevated to a primary concern by the Ukraine crisis and the return of Mr. Trump.
The current significant defense initiative within Europe is the European Sky Shield, envisioned as a missile defense framework parallel to Israel’s Iron Dome.
Mr. Trump has likewise expressed interest in establishing an Iron Dome for the US. The European initiative was sparked under the leadership of the outgoing German Chancellor, Olaf Scholz, in 2022, after witnessing the devastation of Ukrainian cities from Russian missile attacks.
Ireland faces pressure to affiliate with the defense system.
A majority of European nations have joined this effort, which heavily hinges on acquiring existing US technology while planning for future incorporation of European systems.
The French, Italians, and Spanish have not participated in the Sky Shield consortium. The French argue that Europe should cultivate its own technology to mitigate dependence on the US.
Notably, Ireland has not joined any of these groups. Neutral Switzerland, however, has voted to collaborate on the Sky Shield initiative. Neutral Austria is also on board, while Albania and Portugal joined just last month.
Pressure will mount for Ireland to connect with one of the coalitions, with the German-led group centering on US technological support. The UK is also a member of the Sky Shield.
Integrating into a European framework like the proposed Sky Shield could be relatively seamless, and bulk purchasing typically offers better pricing—lessons learned from the COVID pandemic.
For the Irish Government, this would still represent a significant investment endeavor. The challenge is that Ireland does not have a notable track record of managing large procurement projects efficiently.
‘Corporate tax could be Ireland’s most significant strategic vulnerability’
A recent front-page story in the Wall Street Journal regarding the Irish Government’s overflowing coffers from corporate taxation highlighted two glaring examples of ineffective state spending oversight: the National Children’s Hospital and the infamous Leinster House bicycle shed—infamous now in the US, thanks to a publication with the highest print distribution in the country.
The €336,000 bicycle shed at Leinster House made headlines in the US.
Moreover, corporate taxation could be perceived as Ireland’s Achilles’ heel in negotiations with the new US administration, which is eager to capture any potential tax revenues from US companies operating overseas to fund tax cuts and reduce domestic government deficit.
This is precisely why Mr. Trump is advocating for the establishment of an “External Revenue Service” alongside the existing US tax authority, the Internal Revenue Service (IRS).
“From East to West, constraints are mounting.”
In a recent commentary assessing the potential impact of a shift in the US tariff and taxation landscape under the incoming Trump administration, the Central Bank of Ireland noted: “Ultimately, rising tariffs or modifications in tax structures that diminish the profitability of operations in Ireland could, over various timelines, affect future investment decisions made by US multinational enterprises here, their employment levels in Ireland, and the associated tax revenues to the Irish State from their activities, both domestically and globally.”
This suggests that the golden goose may be cooked, warning of a possible rapid transition from significant budget surpluses fueled by abundant corporate tax receipts to a persistent deficit scenario, where the state finds itself in debt again to sustain current operations.
This projection considers the existing level of public expenditures, without any augmentation for defense, housing, health, or welfare.
The Taoiseach recently addressed the Dáil, indicating that Ireland’s EU budget contribution is likely to increase in the next seven-year cycle, alongside additional security investments to contend with the ramifications of the Ukraine war and its consequences.
From East to West, constraints are intensifying. The Americans have long made polite requests.
This time, they won’t be as accommodating.
Whether one likes it or not, one must heed the statements of the President of the United States, particularly in the lead-up to the annual procession of ministers to the US for St. Patrick’s Day.
Inquiries will arise, answers will be anticipated—an open checkbook would be welcomed.
How much of that Apple revenue are you willing to allocate for American weaponry?
