Bigger and earlier budget planned to combat impact of inflation

The Government is to deliver a much bigger and earlier budget than planned with a series of one-off measures to tackle the cost-of-living crisis, Ministers confirmed on Monday as they published the Summer Economic Statement.

Budget 2023, which is to be delivered two weeks earlier than scheduled on September 27th, is to involve a €6.7 billion package of spending and tax measures to be announced on the day – an increase of €1.7 billion over previous plans.

A series of once-off measures, likely to be largely comprised of social protection payments, will be announced additionally. No indication was given as to the size of this financial package, but it is understood that it is likely to run into the hundreds of millions of euro.

Minister for Finance Paschal Donohoe and Minister for Public Expenditure Michael McGrath are understood to have resisted demands from colleagues to commit to larger spending increases as the Exchequer showed a surplus of more than €4 billion for the first half of the year.

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The Cabinet was warned that bumper corporation tax receipts could not be relied upon to continue, and that it would be unwise to build in recurring spending commitments on the back of what could be windfall revenues that will recede in future years.

At a press conference after the Cabinet approved the statement – which sets the parameters for the budget and is one of the key fiscal and economic documents of the year – Mr Donohoe said corporation tax revenues were “highly concentrated” in a small number of companies and could be “volatile”.

He suggested that the surge in corporation tax revenues this year, which has seen the Exchequer take in €8.8 billion, could present an “artificially positive” picture of the public finances, and said that there were signs that economic momentum was slowing.

The Ministers confirmed that the budget would take place on September 27th but have resisted calls from colleagues and the Opposition in recent weeks to bring forward an emergency budget this month.

Under the strategy set out in the statement there will be €1.05 billion set aside on budget day to pay for tax measures, double the amount previously projected. It is expected that much of this will be used to raise tax bands and thresholds to compensate for the effects of inflation.

There will be €2.7 billion for new spending increases in various government departments which Ministers will haggle over in the coming months. However, much of this amount will be taken up with increases to social welfare payments and pensions, and on the cost of any new public sector pay agreement. Trade unions representing public sector workers have already turned down an offer of 5 per cent over the next 18 months, which was costed at €1.2 billion.

Some €400 million of the €2.7 billion figure has been earmarked for spending measures that could kick-in before the end of this year, which could include some social welfare increases and elements of a public sector pay deal that commences this year. Another €3 billion will be used to cover extra spending to respond to demographic changes, the National Development Plan and existing public sector pay commitments.

Mr Donohoe said that while the public finances were strong and economic recovery since the pandemic had been robust, the outlook for the future was increasingly threatening. He cited the war in Ukraine, rising interest rates and persistent inflation as threats.

“A higher cost of funding, alongside elevated debt levels, mean that tax and spending policies cannot be used to resolve all problems. Difficult choices will have to be made and Government will not avoid this,” the Summer Economic Statement says.