Donohoe says budget promises on tax relief and social welfare ‘affordable’

Minister warns that increasing PRSI rate for self-employed could damage efforts to get people back to work

Tánaiste and Fine Gael leader Leo Varadkar at the Fine Gael parliamentary party think-in in  Trim, Co Meath. Photograph: Dara Mac Dónaill

Tánaiste and Fine Gael leader Leo Varadkar at the Fine Gael parliamentary party think-in in Trim, Co Meath. Photograph: Dara Mac Dónaill

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Minister for Finance Paschal Donohoe has insisted that Fine Gael’s promise to include tax relief and a social welfare package in the upcoming budget is “affordable”.

He defended the plan insisting it could be done even as the Government seeks to scale back the huge levels of borrowing brought on by the pandemic.

Tánaiste Leo Varadkar highlighted his party’s intentions for the budget as Fine Gael met for its pre-Dáil think-in.

He said the tax and welfare packages were the “norm” before the threat to the State’s finances posed by Brexit, and that he wanted to see them in every budget.

Mr Varadkar promised tax measures in the upcoming budget to help “middle-income people in particular”, as well as a welfare package to offset the impact of the rising cost of living.

He declined to go into the detail of the welfare package, saying: “that will all be negotiated between now and budget day. I’m not going to put any figures on it at this stage.”

Mr Donohoe was later challenged on whether including tax and welfare packages was prudent given the country’s level of debt.

He noted plans for a two-budget strategy that aims to end borrowing for day-to-day spending by 2023.

Steep reduction

Mr Donohoe said any measures announced on budget day would be within the parameters outlined in the Summer Economic Statement.

He said this “envisages a very steep reduction in our borrowing between this year and next year, followed by another reduction in borrowing the year after that”.

He said Fine Gael’s plan for social welfare and tax packages “will be affordable and will all be inside the context of reducing borrowing”.

Minister for Social Protection Heather Humphreys said her focus in the budget would be on the “vulnerable”, and she was conscious that “there hasn’t been an increase in social welfare payments in the last two years”.

Meanwhile, Mr Donohoe warned that raising the rate of pay-related social insurance (PRSI) for self-employed people to help fund a delay in a rise of the State pension age could damage efforts to get people back to work after the pandemic.

Fine Gael has set out its opposition to a proposed PRSI hike for the self-employed. However, the party has not said how it would fund proposed changes to the pension regime that would mean the rise in qualification age from 66 would not begin until 2028.

The Pensions Commission has delivered its report to Ms Humphreys. It was established to examine the pension regime after it became a significant issue in the last election.

The commission is recommending that the pension age begins to rise to 67 in quarterly increments from 2028 and would ultimately go to 68 by 2039.

It had been due to rise to 67 from the start of this year.

State pension

One proposal being advanced by the commission to help fund the delayed increase in qualification for a State pension is an increase in PRSI for the self-employed – from 4 per cent to 11 per cent.

Mr Donohoe said the issue of pensions was sensitive in the context of the economy and for generations to come that would rely on it to maintain their standard of living in retirement.

He said choices would have to be made, “but I do think you have to put the proposed increase in PRSI in the context of where our economy stands at the moment”.

“We’re trying to get our self-employed back to work... we have to be aware that any big sudden change in the taxes that they are paying could really have a negative impact on our ability to create work.”

Put to him that he was not outlining how Fine Gael would fund the delay to the increase to the pension age, he insisted it was “reasonable” for the party to outline its concerns.

He said the ways that the sustainability of the social insurance system could be dealt with would be outlined once the commission report was considered.