Budget to reduce ‘cost-of-living pressures’ and repair public finances – Donohoe

Package of €4.7bn provides modest increases in pension and welfare rates

Minister for Finance Paschal Donohoe has unveiled a broad package of tax and spending measures in Budget 2022 aimed at reducing "cost-of-living pressures" while addressing problems in housing, health and childcare.

The €4.7 billion package – most of which was already committed to existing pay and capital spending increases – provided €5 increases in weekly pension and welfare rates to shield poorer households from soaring energy costs and an increase in carbon tax.

It also provided for increases in personal tax credits and bands, including a €1,500 rise in the standard rate band of income tax, which will increase the take-home pay of workers at a time of rising costs. High earners are likely to see an increase in their annual net pay of €415 as a result.

Mr Donohoe said the economy had rebounded swiftly since the lifting of restrictions but the Government was “conscious of the cost-of-living pressures”, while mindful of the need to repair the public finances after the massive outlay on Covid-19 wage supports.


Carbon tax

The Government continued with its planned incremental increase of €7.50 in carbon tax, which will add to already rising heating and fuel costs. To compensate, the weekly fuel allowance is to be increased, from today, by €5 a week to €33 and extended to a wider income threshold.

To facilitate remote working, workers will be able to avail of enhanced tax relief amounting to 30 per cent of the cost of vouched expenses for heat and electricity, the same as currently applies for broadband.

But Labour Senator Marie Sherlock said the relief bore little reality to the scale of those costs. "The reality is that the costs of running an office have been shifted from the shoulders of employers to employees for the days that workers are working at home," she said.

To address affordability in the childcare sector, Minister for Public Expenditure Michael McGrath said the Government would extend the National Childcare Scheme universal subsidy to children under 15 from September 2022, benefiting up to 40,000 children at a cost of €5 million to the exchequer.

The housing budget is to be increased to €6 billion to pay for a raft of measures laid out in the Government’s recent Housing for All strategy, including more social and affordable housing projects, while a tax on vacant land zoned for development is aimed at spurring further supply.

Sinn Féin's finance spokesman Pearse Doherty said the budget did little to address the issue of spiralling rents. It should never be normal, he said, that people are paying an average of €2,000 a month in rent in Dublin.

The main budgetary elements for business and the State’s 160,000 small- and medium-sized firms was the continuance of a 12.5 per cent corporation tax rate agreed as part of the international tax reform deal, which will see Ireland’s headline rate for big multinationals rise to 15 per cent, as well as the tapering of the Employment Wage Subsidy Scheme until April 2022.

Refundable tax credit

There was also an extension of the commercial rates waiver for hospitality and related sectors until the end of 2021 and the introduction of a digital gaming credit, designed to increase the fast-growing sector’s employment footprint here.

The measure provides a refundable corporation tax credit for spending on design, production and testing of a game. The Republic employs about 2,000 people in the gaming sector, which is estimated to be worth more than €104 billion.

A restructured Leap Card will also offer half-price travel on public transport for students.

Budgetary documents show the Government predicts the national debt will rise to €239 billion next year, which equates to 99 per cent of national income, which is better than expected.

“Allowing public debt to temporarily increase was the most appropriate way of cushioning the impact of the pandemic, particularly in an environment in which financing costs were exceptionally favourable due to large-scale central bank purchases of sovereign debt,” it said.

Eoin Burke-Kennedy

Eoin Burke-Kennedy

Eoin Burke-Kennedy is Economics Correspondent of The Irish Times