The Government will not generate €65 billion in budgetary surpluses out to 2026 as originally forecast, Minister for Finance Michael McGrath has signalled.
Speaking at the Oireachtas Committee on Budgetary Oversight on Wednesday, Mr McGrath said the projected surpluses had been “scaled back” to take account of noncore expenditure increases, including the Government’s planned package of one-off measures for households and businesses in the upcoming budget.
“The €65 billion figure is not representative of the reality that we expect to develop because noncore expenditure has to be provided for and it’s unlikely to disappear in terms of its need next year or beyond,” he said.
Mr McGrath said the Government’s budgetary forecasts would be updated on budget day as part of a revised financial outlook.
The Department of Finance’s stability programme update in April projected a general government surplus for this year of €10.01 billion, rising to €16.2 billion next year, €18.1 billion for 2025 and €20.8 billion for 2026, amounting to a cumulative surplus of €65.2 billion.
At the committee, Mr McGrath also disputed a claim that the Government’s planned breach of its expenditure ceiling in the budget was greater than the one flagged in its recent summer economic statement.
Sinn Féin’s Pearse Doherty said that when the Government’s spending and taxation changes (€5.2 billion of spending and €1.1 billion worth of taxation measures) are taken together the spending increase was more than 7 per cent, more than the 6.1 per cent signalled by the Coalition.
However, Mr McGrath said the Government would generate an additional €1.1 billion in tax receipts as wage increases attract more tax and therefore the proposed €1.1 billion taxation package was neutral, meaning the net spending increase was 6.1 per cent.
In 2021 the Government said it would not increase spending by more than 5 per cent each year. However, it has moved to drop that rule amid the cost-of-living and housing crises.
In his opening address to the committee, Mr McGrath said the window to prepare for economic headwinds in the future was “rapidly closing”.
“Unprecedented levels of fiscal support” were made available during the pandemic, followed by a “forceful and decisive” response to the cost-of-living crisis, he said.
But, in remarks mirrored by Minister for Public Expenditure Paschal Donohoe, he framed the budget as an opportunity to prepare for harsh times rather than for the landmark €11 billion budget package announced last year.
The Government has a responsibility “to look beyond the immediate term and ensure that the decisions that we take today help to build a stronger and more resilient economy for the future”, Mr McGrath said, adding that the favourable fiscal conditions presented a “real, but brief, window of opportunity to prepare now for the challenges we know are on the horizon”.
Amid a growing sense in government that the budget will be a more constrained affair, he said: “That window of opportunity is rapidly closing”, warning of the dangers of relying on windfall corporation tax “unlinked to the domestic economy”.
“We know from our recent history the dangers of relying on such volatile windfall revenues,” he said, pointing to the sharper-than-expected drop in corporate tax receipts last month.
While there will be one-off measures, he told the committee that the space was “limited” and would be focused on the most vulnerable.
“If we take the right decisions now, we can build upon that progress and ensure that our economy and our society remain resilient for years to come. This will be the cornerstone of Budget 2024,” he said.