The Government unveiled an unprecedented €11 billion giveaway budget on Tuesday amid growing concerns about deteriorating economic conditions.
The Department of Finance said growth would be significantly lower and inflation higher next year than previously expected, and officials acknowledged that Ireland was in danger of slipping into a technical recession, defined as two successive quarters of negative growth.
Speaking at his post-budget press conference on Tuesday night, Minister for Finance Paschal Donohoe said the “most likely scenario is still one of growth” for next year but acknowledged that Ireland now faced an “incredibly uncertain environment”.
Budget documents published by the Department of Finance suggested that the severity of the winter in Europe would have an important bearing on Ireland’s economic prospects.
Forecasts for growth next year were downgraded significantly, dropping by 2.7 percentage points to just 1.2 per cent. At the same time, inflation is now expected to top 7 per cent.
“Downside risks dominate,” the Department of Finance predicts, “with the potential to make a difficult situation even worse.”
However, longer term projections also published on Tuesday suggest that after a difficult 2023, the Coalition expects big surpluses in 2024 and 2025, potentially providing Ministers with a war chest ahead of the next general election, which must take place no later than February 2025.
With most of its key measures leaked in advance of Tuesday’s budget set-piece, the plans received a warm but somewhat muted welcome from Government TDs in the Dáil.
But the package of measures revealed by Mr Donohoe and his colleague, Minister for Public Expenditure Michael McGrath, topped most expectations, coming in at €11 billion. The cost-of-living package, which will see once-off payments to families beginning in the coming weeks under a range of headings and a series of tax changes and business supports, will cost €4.1 billion. The core package of recurring spending increases and tax changes will cost €6.9 billion.
Mr Donohoe also announced that the Government would transfer €2 billion into a reserve fund this year and a further €4 billion next year to create a buffer to deal with future needs, and to take account of the many warnings that current bumper corporation tax receipts may not last indefinitely.
In his budget speech, Mr Donohoe hailed the budget as a work of the “political centre of Ireland” which he said was “pro-European, supportive of enterprise, committed to a sustainable future for our public finances and our environment”.
Mr McGrath said the budget “seeks to respond with unprecedented resources, with a breadth of measures, and a speed of execution that we have not seen before”.
“We do not suggest that the budget will meet every need. That would not be possible,” Mr McGrath said. “It is in everyone’s interests that our national finances are managed carefully, and that we guard against current and future risks. But this budget will make a difference and people will see that difference quickly.”
But Sinn Féin finance spokesman Pearse Doherty attacked the Government for treating lower income workers as an “afterthought” and leaving them “out in the cold”.
He said most workers would receive only €190 extra a year under the Government’s income tax band change, while those earning more than €100,000 would stand to benefit from €830.
The Coalition’s housing plans in the budget also came under sustained criticism from Sinn Féin who described them as a “poor and pale imitation” of its plan to give renters back a month’s rent in tandem with a ban on rent freezes.
The Opposition also criticised the new vacant homes tax which will be introduced next year, with the Social Democrats describing it as “too weak to be effective”. In budget documentation, the Government said it was expected to raise only about €3 million-€4 million.
Labour’s finance spokesman, Ged Nash, dismissed the budget as “wads of cash thrown about like snuff at a wake” but said the money was “spread so thinly that some won’t even notice, while many will still need more by the time this winter is out”.
The Government also faced criticism for not introducing welfare increases immediately. At the budget press conference, Mr McGrath responded that there would be an “extensive range of lump sum payments between now and Christmas” and that the general welfare increases announced in the budget would begin in January of next year.
The Irish Congress of Trade Unions (Ictu) gave the budget a mixed response. General secretary Patricia King said while the budget contained “a number of positive measures, it falls short in terms of protecting low-paid and low-income households from the highest inflation rates in almost four decades”.
Employers group Ibec gave a similarly mixed verdict, praising the business supports announced but saying it was disappointed that the 9 per cent VAT rate for hospitality businesses, due to expire next February, has not been extended.
The Irish Fiscal Advisory Council, the Government’s independent budgetary watchdog, gave the budget a broad welcome, however. The council, which has been frequently critical of Government budgetary policy, said the budget “strikes a balance between providing support and avoiding adding excessively to higher inflation”.
The council also praised the establishment of the reserve fund as “welcome” noting it was “in line with the council’s advice to unwind the State’s over-reliance on excess corporation tax receipts gradually over time and build up a buffer that can be used in future downturns”.