Budget 2019: Spending boost for welfare, health, housing as FF/FG agree to review confidence deal

Paschal Donohoe announces increase in tourism VAT rate, tweaks to USC, €5 increase in welfare

Cuts to USC, a €5 increase in welfare payments and housing and Brexit measures were among the annoucements made by Minister for Finance Paschal Donohoe in Budget 2019.

 

Minister for Finance Paschal Donohoe announced spending boost for welfare, health and housing in Budget 2019 on Tuesday.

It comes as Fanna Fáil leader Micheál Martin told his parliamentary party that he spoke to Taoiseach Leo Varadkar on Tuesday evening regarding a review of the minority government’s confidence and supply agreement following the delivery of Budget 2019. Mr Varadkar said if they “engage seriously” they could get this done by “the Halloween break or certainly the end of the Halloween recess period and I think that should be our target ”, he told RTÉ.

Mr Martin said that he and the Taoiseach agreed their staff would agree a process for the confidence and supply review. Mr Varadkar has already proposed that he and Mr Martin agree a summer 2020 date for the next election.

Delivering Budget 2019 in the Dáil, Mr Donohoe announced tax and spending measures including €110 million funding for challenges related to Brexit. Boosted spending on social welfare, housing and income tax reforms were among the key points announced.

Among the key measures were a reduction in the third rate of USC from 4.75 per cent to 4.5 per cent, an increase in VAT on the tourism and hospitality sector from 9 per cent to 13.5 per cent, an extra 50c on a packet of cigarettes,a €5 increase in social welfare payments, an extra two weeks’ paid parental leave, a 50 cent reduction in prescription charges for those aged over 70.

More houses will be provided this year than in any year in the past decade, Mr Donohoe has said. A €310 million subsidy to assist local authorities to provide more than 6,000 affordable homes at a discounted rate to qualifying buyers.

Mr Donohoe said the current housing situation is “not where we want to be”.

“There is much work to be done to reduce homelessness and find permanent solutions for those in emergency accommodation,” he said.

He said it was “a responsible Budget for a modern and caring Ireland” with additional funding for health and housing.

But Fianna Fáil – whose acquiescence is needed to pass the budget – strongly criticised the Government’s record in housing in an indication of how it will approach the review of confidence and supply deal expected in the coming weeks.

Caring Budget

While Mr Donohoe said the “sensible” and “caring” budget would strengthen the public finances as the country faces Brexit next year, his opposite number in Fianna Fáil – Michael McGrath – accused the Government of failing “to get to grips with the housing crisis”.

“It is the Government that has executive authority; it is the Government that controls the Department of Housing; it is the Government that is responsible for addressing the housing crisis and it is the Government that must accept its performance on housing has not been good enough,” Mr McGrath said.

Sinn Féin leader Mary Lou McDonald said the budget had been billed as a housing budget but instead it was more like a homeless budget. “It lacks ambition, it lacks investment, it doesn’t reflect the scale of the crisis, ” she told RTÉ.

Housing, rental sector and inheritance tax

In his address, which lasted about 75 minutes, Mr Donohoe allocated an extra €30 million for homelessness services (bringing to €146 million the total for 2019); €60 million extra in capital funding for additional emergency accommodation and €1.25 billion for the delivery of 10,000 new social homes in 2019.

The Minister also allocated a further €2.3 billion to the housing programme.

With regard to the rental sector, Mr Donohoe said he will bring forward “the full removal of the restriction on the amount of interest that may be deducted by landlords in respect of loans used to purchase, improve or repair their residential property.”

In inheritance tax, the threshold for the “group A” category – parents to children – will be increased from €310,000 to €320,000.

Health

The Minister announced a further increase of €1.05 billion in health funding for 2019, bringing that department’s total budget to €17 billion. He also announced total funding of €1 billion for mental health services and €150 million more for disability services to bring total funding to almost €2 billion.

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Podcast: Budget 2019

Other changes introduced include a €25 increase in the weekly income threshold for GP visit cards; a 50 cent reduction in prescription charges for over 70s to €1.50; and a €10 reduction in the monthly drugs payment scheme threshold.

Income tax

The Minister said the income tax system is “broadly based and stable” and said this has to remain the case.

The 4.75 per cent rate of Universal Social Charge (USC), on incomes between €19,372 and €70,000, will fall by 0.25 percentage points to 4.5 per cent. The threshold at which people hit the higher, 40 per cent rate of income tax will rise by €750 from €34,550 to €35,300. This means the top marginal rate on incomes up to €70,000 will be reduced to 48.5 per cent.

The home carer tax credit is increasing by €300 to €1,500.

For the self-employed, the Earned Income Credit will be increased by €200 to €1,350. Minimum wage will be increased to €9.80 per hour.

Welfare and childcare

All weekly social welfare payments will increase by €5 from next year, with the Christmas bonus restored to a double payment for the first time since the crash.

PRSI for the self-employed is to be expanded.

Two weeks’paid parental leave is to be given to every parent of a child under one year from November 2019.

Increases to the Qualified Child Payment of €2.20 per week in respect of under 12s and €5.20 per week in respect of over 12s, as well as a €25 increase in both back to school clothing and footwear allowance rates were also announced.

Brexit

Brexit is the “political, economic and diplomatic challenge of our generation,” Mr Donohoe said as he announced new budgetary measures worth more than €710 million to protect against its effect on Ireland.

The Minister said he was launching “a human capital initiative worth €300 million”, a future growth loan scheme of €300 million for small and medium-sized enterprises (SMEs) and the agri-food sector.

He allocated more than €110 million towards Brexit measures across many Government departments, including funding for “essential customs requirements”.

There would also be increased funding for the peace programme, he told the Dáil.

Mr Donohoe is allocating funding of €950 million to the Department of Business, Enterprise and Innovation in 2019, an increase of 9 per cent on last year.

Rainy day fund

A rainy day fund of €1.5 billion has also been introduced. Announcing the measure, Mr Donohoe said the State’s ability “to withstand economic shocks in the future needs to be rebuilt”.

Mr Donohoe expects the deficit to run at 0.1 per cent this year and balance the budget next year. Thereafter he expects to run a surplus.

Tourism and hospitality sector

As expected, the tourism and hospitality sector will see an increase in the VAT rate from 9 per cent to 13.5 per cent from January 2019, raising €466 million next year.

Crime and law

An Garda Síochána’s budget has been increased by €60 million to allow for recruitment of 800 extra gardaí.

An extra €60 million has been allocated to the broader justice sector to include spending on additional asylum accommodation, widening the Magdalene scheme, relieving pressure on the criminal legal aid system and responding to pressures on the Data Protection office in EU role.

A capital allocation of €220 million is to go towards the construction of the Forensic Science Laboratory; investment in Garda ICT and the purchase of Garda vehicles; and works on Limerick prison.

Defence will get an extra €29 million which will be provided for additional projects including extra equipment and infrastructure in the Army, Air Corps and Naval Service.

Education

The Department of Education and Skills has been allocated €10.8 billion. The Minister said this includes funding to meet changing demographics and allows for an additional 1,300 posts in schools.

Over €1.8 billion is being invested to support children with special educational needs, allowing for up to an additional 950 special needs assistants to be recruited in 2019. An additional €300 million has also been allocated to third level education for the period up to 2024.

Tax

Tax on cigarettes will increase by 50 cent with a pro-rata increase on other tobacco products. There is no increases in excise on alcohol.

The betting tax will increase from 1 per cent to 2 per cent.

Transport

The Minster made €286 million made available next year for new transport infrastructure such as the N4 Collooney to Castlebaldwin and the Dunkettle Interchange; the completion of the runway overlay project at Knock airport.

Environment

There was no increase in carbon tax. Mr Donohoe said it is his intention to put in place “a long-term trajectory for carbon tax increases out to 2030 in line with the recommendations of the Climate Change Advisory Council and the special Oireachtas Committee which are examining climate changes.”

He said that Ireland will no longer purchase diesel only busses after July 2019.

In line with several other EU states, there will be a 1 per cent surcharge for diesel vehicles across all VRT bands and the Minister is extending VRT relief for hybrid vehicles until 2019.