No point handing a €200 energy credit to someone who wants to buy a luxury EV

This will be the Coalition’s most politically difficult budget. The Covid-19 budgets were the most dramatic and risky – vast sums were being committed in new schemes at a time when no one knew how the pandemic would play out. This time the challenge is different. The exchequer has a large surplus and spare cash shoved down the back of every sofa, yet it will struggle to meet the expectations of a public squeezed by higher interest rates, energy prices way above what they are used to and prices that still seem to be rising at every turn. The long tail of the cost-of-living crisis makes Budget 2024 extremely tricky.

For household budgets, things may not be generally getting worse, but they are not getting much better either. Inflation is falling, but prices remains high – and we have seen how quickly the ending of the 9 per cent VAT rate for hospitality was passed on. Interest rates may have peaked, but the latest rise will take time to pass through to mortgage bills and the time when rates will fall still looks a long way off.

And then there are energy prices. Taoiseach Leo Varadkar and Minister for Energy Eamon Ryan met the energy companies during the week, in a largely performative effort to push for a second round of reductions in household bills. The energy companies argue that their hedging strategies protected consumers here during the surge in wholesale prices in 2022, but that this means prices are now slow to come down.

It is difficult to unpick this without knowing the details of the finances of these companies. But what we can see is that wholesale gas prices, while way down from their 2022 peak, remain three times their average before the crisis started. In a market that depends much more than the average on gas to generate electricity, this means retail prices may well be slow to fall further, unless wholesale prices drop again. Meanwhile, oil prices have firmed on world markets, pushing up costs at the pumps.

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With forecasts of a budget surplus of revenue over spending of €10 billion this year, and €16 billion for 2024, there is no shortage of cash in the short term

Into this bear pit step budget ministers Michael McGrath and Paschal Donohoe, against a backdrop of a populist politics where households expect to be compensated for just about everything. With forecasts of a budget surplus of revenue over spending of €10 billion this year, and €16 billion for 2024, there is no shortage of cash in the short term. And so an almighty battle is brewing in Cabinet over the shape of a cost-of-living package.

Here are the likely hot-button budget issues.

One will be what, if anything, is done for mortgage holders, who have been hit with a succession of interest rates increases costing many €350 or €400 extra per month. McGrath has held out against a full reintroduction of mortgage interest relief. He is right to hold out, as it would end up helping many who simply do not need it, even if introduced on a restricted basis as Sinn Féin has suggested. But the Government is being drawn some way down the road here, with Varadkar saying on Friday that support for mortgage holders was being looked at, but would have to be aimed at those who are paying the highest interest rates and need it most.

Means-tested

Targeting, however, is hard to achieve. Mortgage tax relief was offered through a general scheme to people who took out loans up to the end of 2012. (The scheme finally ended in 2020.) Meanwhile, on a much smaller scale, there was a separate mortgage interest supplement, a means-tested welfare payment to help people meet their bills that closed to new entrants in 2014.

There is a well-heeled, generally older group whose bank accounts are more than healthy, and who probably wouldn’t even notice a €200 energy credit off their bills

If it wants to help again, the Government could reintroduce a general scheme via the tax system – that would be expensive, would inevitably help many people who don’t need it and could be hard to row back on. Or it could go for a much more targeted scheme, perhaps via the welfare system, that would work only if its criteria were very carefully drawn up and a way was found to deliver it. Work is under way on this, but no decision has yet been taken.

The second hot-button issue will be what to do about high energy bills. The €200 universal credits are a bad idea, again giving money to a lot of people who don’t need it. But at least one more of these payments is likely, funded by the tax on windfall profits of energy companies. And no doubt cash will be directed, as it should be, towards households that really need it via the fuel allowance and other welfare measures. This won’t end the political row, though. Sinn Féin will presumably persist with its policy of seeking some cap on household bills. Some in Cabinet will push for a repeat of last winter’s three €200 credits.

The third big political issue will, of course, be housing and the rental market. Many of the biggest problems here lie outside the budgetary process, involving planning and housing delivery. But with housing central to Sinn Féin’s pitch to voters – as underlined by party leader Mary Lou McDonald again yesterday- it will miss no opportunity to renew its attack on the Government and call for more resources for a State building programme. Meanwhile, additional tax relief for renters – who now receive a €500 tax credit – and landlords will both prove controversial for different reasons.

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There will also be scraps around income tax, health and the welfare package. But in a budget it is often not the areas where most is spent that prove the most controversial.

A key issue in terms of spending State resources is that while some in the middle ground are genuinely squeezed, there is also a lot of money around Ireland at the moment – and many households who don’t need help. Just ask anyone selling upmarket EVs, or in the pensions business or the travel trade: there is a well-heeled, generally older group whose bank accounts are more than healthy, and who probably wouldn’t even notice a €200 energy credit off their bills.

Ireland’s strong economy, combined with a long period of low interest rates and rising house prices, has left many households in a strong financial position. Contrast that, for example, with many younger renters with no assets to their name, or people genuinely struggling to pay their bills – and it is pretty obvious where the budget priorities should lie.