Budget 2021: Government to spend extra €6 billion in largest budget in history of the State

The Government is this weekend finalising the largest budget package in the history of the State as it continues to borrow and spend vast amounts to pay the economic and social costs of the coronavirus pandemic.

It is expected the budget day package of extra spending measures – previously expected to be worth about €3 billion – will now be as high as €5 billion-€6 billion.

This is in addition to extra Covid-19 spending already committed, which is projected to add €8 billion-€9 billion to current expenditure next year.

Yesterday, Minister for Finance Paschal Donohoe said the deficit for 2020 was expected to be €21 billion – a huge figure but considerably less than was feared earlier this year. But Mr Donohoe also confirmed the projected deficit for this year would increase if the current level of public health restrictions were to be tightened.

Both Mr Donohoe and Minister for Public Expenditure Michael McGrath warned of the economic costs of reintroducing lockdown, with Mr Donohoe stressing dangers to employment levels. “We need to take great care with such a decision,” he said. Mr McGrath added: “The impact would be immediate and severe.”

Budget 2021 will be published on Tuesday. Mr McGrath said total expenditure this year would be more than €86 billion, the largest bill for running the State in its history, pushed up by about €16 billion of extraordinary pandemic-related measures.

All the money required to fund the deficit this year and next will be borrowed and added to the national debt, the Ministers confirmed.

Affordable housing

Budget haggling is continuing this weekend as Ministers seek to finalise their allocations from the Department of Public Expenditure. Senior sources signalled an additional allocation would be made for affordable housing, with negotiations continuing yesterday on a new scheme to see the State take part-ownership of homes in an effort to make owning a property more accessible. The State’s stake would be paid back over time.

Sources indicated the VAT cut introduced in the July stimulus programme will not be extended in the budget, and instead allowed to lapse when it is due to expire in February. But a VAT cut for the hospitality sector remained in the balance. It is expected there will be a long list of sector-specific supports for areas hit hardest by the pandemic, with sources mentioning hospitality and taxis.

Changes are also expected to make purchasing new high-emissions vehicles more expensive, while construction and housing will be shielded from any policy or taxation changes, which Government fears could endanger employment or tax revenues from the sector.

Minister for Health Stephen Donnelly yesterday signalled the budget would contain funding for new investment in maternity services.

He told the annual conference of the Irish Nurses and Midwives Organisation (INMO) the maternity strategy, first published in 2016, had not received the level of funding required to “move at the pace” needed. He was committed to securing funding in the budget to change that and ensure the maternity strategy was funded “at the level it needs to be funded at”.