A significant package of one-off spending measures is likely to be included in the budget in a repeat of last year’s formula, Ministers expect.
Leaders of the Government parties and the two budget Ministers were locked in talks late last night ahead of the publication of the Summer Economic Statement, which sets the parameters for the October budget and is expected to be approved by the Cabinet and published today.
But multiple sources said the statement was likely to take a cautious approach, due to fears about inflation and overheating an already expanding economy. Sources added this meant the budget would be accompanied by billions of euros in one-off measures intended to ease cost-of-living pressures without adding to inflation or taking on new annually recurring spending commitments.
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There was alarm among some Ministers at reports over the weekend suggesting the budget package might be just €5 billion, considered by many to be too low an increase in spending at a time when the exchequer is flush with cash and a general election due in or before early 2025. One Minister described the €5 billion figure as “not realistic”. Another said it was unsustainable.
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Informed sources speaking before last night’s crunch meeting said that the likely outcome was in excess of €6 billion in extra spending including more than €1 billion in tax measures. These measures will include an adjustment of the bands and thresholds that will reduce the amount people would otherwise have paid.
However, these spending increases would be accompanied by a repeat of at least some of last year’s one-off measures, which included bonus welfare, child benefit and cost-of-living payments that amounted to a further €4 billion.
Keeping the cost of recurring spending increases and tax measures below last year’s level of €7 billion would be seen as a victory for Minister for Finance Michael McGrath and Minister for Public Expenditure Paschal Donohoe, who have argued strongly for a cautious approach in recent weeks.
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But they face a barrage of spending demands in the coming months as Ministers jockey for departmental spending increases.
Yesterday Mr Donohoe hinted that he favours a similar package to last year’s budget, where the tax system moved towards indexation to ensure that people who received pay rises did not lose their value by moving into higher tax brackets. Asked if he was less in favour of the kind of bonanza tax measures called for by his colleagues, such as €1,000 tax cuts, he replied the Government should follow through its programme promises to index the tax code.
“I believe we should implement that. The reason for that is that if we don’t move our tax policy in line with the increased growth in our economy, in a few months I will be before you all again and you will be saying stealth taxes have been introduced and that people who are receiving a wage increase, that they are now losing a higher share of that due to their income moving into a higher tax bracket. You can do that at a level that does not create an inflation risk. I am confident we will get the balance right,” he said.
“The Minister for Finance and myself are completely committed to the cause of not spending money in excess corporate tax receipts which we are advised may not, and in all likelihood will not, be around in years to come.”
