The publication of the papers drawn up by the Tax Strategy Group of senior departmental officials is one of the markers each year in the run-up to budget day. That said, the papers study a whole range of possible reforms, of which only a very small number ever feature in the budget itself.
The backdrop to the budget this year could hardly be more difficult, with a serious cost-of-living crisis and the real risk that this could get worse. If Russian gas supplies to the EU are cut completely, the resulting pressure on retail gas and electricity prices will create a really serious situation for many households – significantly worse than we have seen so far.
As during Covid-19, significant budgetary measures will be needed. And they will not be cheap. The papers serve a useful function in scoping out the options to ensure that those on welfare are protected and some relief is given to taxpayers. Given the surge in inflation, the costs are really significant. Additional measures – some of them once-offs – are likely in 2022. Big decisions lie ahead on how resources should be allocated.
Less well-off households in particular need urgent help and it is vital that a significant portion of scarce budgetary cash is directed at them. Focus is vital. The papers show, in terms of welfare, a few options combining general increases with specific measures aimed at those in particular need.
Taxpayers will also hope for some help, which should be directed as much as possible at low and middle earners. Indications are that an increase in tax credits and bands will be favoured over the possible introduction of a new 30 per cent income tax rate. There are no “right” answers here, but there is a value in keeping the tax system simple.
The issue of indexing taxes and welfare payments bears consideration at a time when inflation may have permanently picked up, but those who call for this to happen should also outline how it would be paid for. Higher inflation does boost some tax receipts, notably VAT, but indexation would still come at a cost.
There will be an unprecedented clamour for higher spending and tax relief. Facing something of an economic storm, budget Ministers Paschal Donohoe and Michael McGrath would be best to focus the bulk of their fire on the areas most in need, and ensure they have some firepower to respond heading into 2023 if needed.
It remains the case <NO1>the<NO>the Government cannot compensate everyone for a crisis which leaves the country worse off. But by aiming relief where it is most needed and continuing to plan for key investments in areas like housing and climate change, the budget can still make a difference.
In the years ahead, more revenues will be ne