Budget 2023 will be a “cost of living Budget” worth 6.7 billion euro, Minister for Finance Paschal Donohoe has announced, while confirming that Budget Day would be held two weeks early this year in response to the cost-of-living crisis.
The Summer Economic Statement, announced on Monday after being approved by Cabinet, sets out the health of the Irish economy and the parameters for next year’s Budget.
It outlines an increase in spending of 2.2 billion euro compared with last year’s Budget amid the Government’s estimations that inflation will average at 7% to 8% for the year.
The overall package will be made up of additional public spending worth 5.65 billion euro, and taxation measures worth 1.05 billion.
Three billion euro of the total is pre-allocated, and 3.7 billion is left to be divided between Government departments.
The planned change to tax bands and credits aims to ensure that workers are not “dragged” into higher levels of taxation by virtue of wage inflation, the Statement said.
The exact change to tax bands was not detailed as part of the Summer Economic Statement.
Budget 2023 will also include 4.5 billion euro in non-core expenditure for temporary measures, which include humanitarian support for Ukrainian refugees (three billion euro), the Brexit Adjustment Reserve (600 million euro) and some Covid-19 measures (one billion euro).
However, the exact allocation and split of that total will be reviewed in the lead up to Budget Day.
The Summer Economic Statement also notes the vulnerability of the economy to high public debt in Ireland, particularly when coupled with financing an ageing population, climate change mitigation, the digital transition and implementing Slaintecare.
Concerns were also raised about the severe economic disruption to the Irish export market if Russia were to completely withdraw its gas supplies from Europe, in retaliation for the sanctions imposed by the EU over the ongoing invasion of Ukraine.
Despite this, the Irish economy appears to have recovered well from the Covid-19 pandemic.
There was an Exchequer deficit of about five billion euro in the first half of last year, compared with an Exchequer surplus of 4.2 billion euro for the first half of this year.
This amounts to an overall turnaround of 9.5 billion euro compared with the first half of last year.
Tax revenue was projected at 75.8 billion euro this year, up almost 11% on an annual basis; the statement notes that a large part of any tax revenue “overshooting” will be due to corporation tax receipts, whose “continued flow cannot be guaranteed over the medium term”.
The details of the Summer Economic Statement were announced on Monday by Finance Minister Paschal Donohoe and Public Expenditure Minister Michael McGrath, following approval by Cabinet.
Mr Donohoe stressed that he still expects the economy to grow this year, and confirmed that Cabinet had approved to move Budget Day to Tuesday September 27.
Mr Donohoe said that corporate tax receipts worth 8.8 billion euro so far this year were were “well ahead” of 2021, but warned against overly relying on that income as it was “highly concentrated among a small number of companies and [receipts] are therefore subject to extreme potential volatility”.
“Acknowledging that we do indeed have a surplus for the first half of the year, that surplus is largely driven by our performance in corporate tax receipts.
“If we look at the three billion euro improvements that we’ve had in the corporate tax base so far this year, it has fed into a surplus of 4.2 billion euro.”
Mr Donohoe said there was a collapsed demand within the Irish economy during the Covid-19 emergency that meant that a larger scale response was needed from Government, but that the inflation challenge “requires a different response”.
“The scale is completely different to where we were with Covid, but as with Covid, they will also be one-off and temporary, which at the right point I hope we will be able to bring them to an end.”
Mr McGrath said that as a result, there would need to be “earlier engagement” and “much more work done across this month of July between myself and my colleagues as part of the estimates process” in order to have budgetary work completed in time for that date.
Mr McGrath also said that new budgetary expenditure measures account for 2.7 billion euro, but that 400 million of this would come into effect for this year, leaving 2.3 billion euro for new expenditure measures for 2023.
“In terms of new measures and new initiatives, the envelope is in the region of 2.7 billion euro, and we have made a decision to provide for 400 million euro of that to be brought forward into 2022 that would be used for a combination of any enhancements yet to be agreed in relation to public service pay in the current year, and also measures on the core permanent expenditure side that we would like to commence in 2022 rather than waiting until 2023.”
Mr Donohoe added that they had not defined exactly what would be available for use this year, and that he would be bringing proposed changes to the tax package for 2023 to the coalition leaders for consideration in late August.
Mr McGrath added: “That’s a judgment we would be best placed to make in September.
“By September, we will have even more information at our disposal about the public finances within the current year and we will make a judgment at that stage as to what we thing is the appropriate intervention.”
Speaking ahead of Cabinet earlier, Taoiseach Micheal Martin said: “We’re going to get the balance right here. The Summer Economic Statement sets out the parameters of what’s possible.
“We are in the context of a unique set of circumstances coming out of Covid-19, supply chain difficulties and balances between supply and demand, which created its own inflationary cycle.
“And then the war in Ukraine has been very dramatic in terms of its impact on energy prices, which has fed into the broader economy.
“So we do have to, through a combination of budgetary and temporary measures, try to alleviate the pressures on people, and that is the objective.
“Now remember, we already have taken taxation initiatives, around fuel and so on.”
Mr Martin added: “We do have to think of 2023 and beyond and to make sure that we have sustainability in our public finances and also to see what to do for the remainder of 2022.
“We are conscious that people are under a lot of pressure on households and so forth.
“So therefore we do have to see what we can do between now and the end of the year through the Budget and also how we have sustainability in pay and taxation measures.”
Subscribe or register today to discover more from DonegalLive.ie
Buy the e-paper of the Donegal Democrat, Donegal People's Press, Donegal Post and Inish Times here for instant access to Donegal's premier news titles.
Keep up with the latest news from Donegal with our daily newsletter featuring the most important stories of the day delivered to your inbox every evening at 5pm.