Donohoe unveils €11bn budget to combat inflationary squeeze

Budget 2023: Coalition flexes fiscal muscle in attempt to cushion households and firms from rising prices

Minister for Finance Paschal Donohoe has announced a near-record budget spend of €11 billion in a bid to shield households and businesses from the impact of rising prices.

The package, a combination of permanent and temporary measures, includes a €600 energy credit paid out to households in three instalments, a €500 tax credit for renters, two double welfare payments between now and Christmas and a widening of the income tax bands to ensure workers only pay the top rate of tax at income above €40,000.

The measures were, in large part, funded by excess corporation tax receipts, which will mean the Government runs a budgetary surplus this year, one of the few administrations in Europe likely to do so.

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Mr Donohoe said he would put €2 billion of this surplus into a new reserve fund and an additional €4 billion next year.

He said Budget 2023 “is and must be a cost-of-living budget, focused on helping individuals, families and businesses to deal with rising prices”.

While the package, which included €4.1 billion in temporary measures, covers a wide range of areas, there was a focus on relieving the relatively high cost of childcare and housing in Ireland.

Minister for Public Expenditure Michael McGrath announced a 25 per cent reduction in creche fees through increased subsidies under the National Childcare Scheme. “This measure will put up to €175 a month, or €2,106 a year, back in the pockets of parents next year,” he told the Dáil.

A double child benefit payment (worth €140 per child) will be paid in November in addition to the normal monthly payment while free GP care is to be extended to children aged six and seven.

Minister for Children Roderic O’Gorman has pledged to cut the cost of childcare by 50 per cent over the next two years, suggesting a further reduction is on the cards in 2024

On housing, Mr Donohoe unveiled a new annual tax credit for renters worth €500 each year for 2022 and 2023 — with up to 400,000 people expected to benefit. But critics noted it would be worth just a third of the average monthly rent — now put at €1,600 — being paid by renters here.

Budget 2023: What it means for businesses and taxpayers

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[ Budget 2023 main points: Vacant homes tax introduced, excise reductions on fuel extended, tax credits for renters ]

[ Putting money back in people’s pockets will not offset effects of ongoing inflation ]

[ Do you have a query on how this year’s budget affects you? ]

[ Standard rate income tax threshold rises €3,200 to €40,000 ]

Sinn Féin finance spokesman Pearse Doherty claimed the credit would be pocketed by landlords with further rent hikes.

Mr Donohoe also announced an extension of the Help-to-Buy scheme, a tax rebate for first-time buyers, noting that since its inception in 2017, it has helped 35,000 get on the housing ladder. A new vacant homes tax will also be levied on properties occupied for fewer than 30 days and levied at three times the residential property tax rate.

He admitted “too many people cannot afford to buy their own home, or are paying too much of their income in rent” but hailed the increase in housing supply with some 25,000 new homes built in the past 12 months.

There was also an expansion of the pre-letting expenses regime for landlords, aimed at stemming the exodus of smaller landlords from the market.

Single person

As part of this budget, the top tax income rate will now only apply to income above €40,000. At present, the higher 40 per cent tax rate kicks in on income in excess of €36,800 for a single person.

The changes could be worth €800 to a single person and €1,600 to a two-income couple. Core social welfare payments are also to increase by €12 per week. Third-level students will see a once-off €1,000 reduction in their fees this year.

Mr Donohoe also announced a new support scheme for small businesses struggling with increased energy costs.

The €1 billion Temporary Business Energy Support Scheme will cover 40 per cent of the increase in electricity or gas bills, up to a maximum of €10,000 per month per business. It will be administered by the Revenue, backdated to September and run at least until February.

“This is a significant intervention by the government in the Irish economy to protect employment,” he said.

Eoin Burke-Kennedy

Eoin Burke-Kennedy

Eoin Burke-Kennedy is Economics Correspondent of The Irish Times