Another year, another crisis budget. The Government will have hoped that the passing of the worst of the Covid-19 pandemic would allow a more conventional package this year. But war and the energy crisis have dictated otherwise, with a massive ¤11 billion package split between once-off and permanent measures .
The economy bounced back from Covid-19 more strongly than expected and the resulting rise in general tax revenues gave budget ministers Paschal Donohoe and Michael McGrath significant room for manoeuvre.
Unfortunately the energy crisis is hitting the economy hard, with growth next year forecast to be at its lowest level since shortly after the financial crisis. Add in the unpredictability of corporate tax revenues and the budget had to strike a delicate balance – to help households and businesses without endangering the public finances.
Broadly it seems to have achieved this, with a massive package of once-off measures and substantial permanent increases in spending and some tax changes. These will go a long way to support households and businesses this year and in the early months of 2023. But what happens then? At least some of the temporary measures may have to be repeated or extended. On current forecasts the exchequer should have leeway to do this if needed during 2023, but clearly not on a permanent basis.
The balance of short-term measures is tilted to help those most in need, though the universal energy credit – giving support to those who need and those who do not – will feature again with another three payments. While it is difficult to target middle earners, new thinking is needed if longer-term measures to help households are required. Once-off welfare payments will give significant support to less well-off households and families through this winter.
Beyond that much will depend on wholesale energy prices and the knock-on impact on energy bills. The State is going a significant way to protect households, but living standards are still set to fall on average this year and next with a striking budget forecast being that the inflation rate could top 7 per cent again next year.
In this context, the political demand from the Opposition benches is – and will remain – for the Government to do yet more. It looks to have done enough for now, but it is impossible to say what might be needed in 2023. As happened during Covid-19, temporary schemes are likely to be extended. The permanent budget measures, meanwhile, point towards a bigger State with new social supports and extra spending in areas like GP cards, education and welfare. In time, when the corporation tax surge wanes, the need to pay for these will require higher taxes. For now, the fight against the latest crisis will go on.