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Dublin: 11 °C Sunday 7 June, 2020

6 important things to watch out for in tomorrow's pre-Brexit Budget - from income tax to childcare

KBC chief economist Austin Hughes outlines what you can expect from Budget 2020.

Image: Shutterstock/sebra

TOMORROW, MINISTER FOR Finance Paschal Donohue will confirm the details of Budget 2020, outlining the Government’s spending plans for the year ahead.

With concerns about a chaotic Brexit at a high, this Budget will be a cautious one, says KBC chief economist Austin Hughes.

If Brexit wasn’t on the horizon, I’d be predicting a Budget that would set out the stall for the next election by setting out measures to tackle problem areas like housing and health in a big way. Instead this is most likely going to be more of a ‘holding Budget’, as the Government waits to see how severe Storm Brexit will be.

New survey results from KBC show Irish consumer sentiment levels for September at their lowest lowest level in six years, painting a picture of a nervous pre-Brexit nation – a nation that is in need of reassurance, adds Hughes:

The Minister for Finance has to prove to taxpayers that he’s not panicking, by striking a balance between being prudent and making positive changes that will benefit people’s pockets.

So, what are the changes and sticking points to be aware of as you follow Budget coverage tomorrow? Here’s Hughes’ take…

1. Look for big plans, but small changes

“This Budget needs to mainly be about Brexit-proofing the economy and the public finances as much as possible,” says Hughes.

I don’t believe you can ever have a Budget that will truly insulate the economy, but I certainly wouldn’t expect any large scale changes. That applies to things like housing, petrol and diesel taxes, and even health.

So it won’t be all doom and gloom, but don’t expect a massive economic overhaul, he explains: “We can be confident that there will be a lot of grand pronouncements about how the government plans to do things in future years, but that the moves themselves will be fairly modest – and in some people’s eyes, too modest.”

shutterstock_585387518 Source: Shutterstock/wutzkohphoto

2. Help-To-Buy should be safe for now

Already this year there has been talk about modifying or ending the Help-To-Buy scheme, but positive sentiment lately for the scheme from the Taoiseach and from Housing Minister Eoghan Murphy suggests it could be safe for now. In Hughes’ eyes, retaining the scheme will be a win-win for most parties:

Anything that could further damage the housing market should be absolutely avoided, so I don’t think there will be any major moves on this, beyond some talk of it eventually being phased out.

Hughes emphasises the importance of the scheme for first-time buyers. “KBC surveyed home buyers about the scheme and close to half (46%) of respondents said they’d be negatively affected if the scheme was removed, with 14% of those saying they’d be unable to buy.”

3. Our carbon footprint will be a top concern

The summer’s local and European elections saw a surge in support for the Green Party, a signal that climate change action is of high importance to voters. “The Minister needs to show that the government is clear on climate change, so this Budget should include key measures to lower the carbon footprint of the economy,” says Hughes.

Potential signals to watch out for include an increase in carbon tax, more support for electric vehicles, and smaller initiatives to support a greener Ireland. While the rise in carbon tax is widely expected, Hughes says it “won’t be dramatic – too much of a hike in vehicle costs would put us at a disadvantage against the UK.”

shutterstock_516265987 Source: Shutterstock/DavidSch

4. The country needs to remain competitive

Carbon tax is not the only area where it’ll be important for us to remain competitive against the UK, notes Hughes. He points to the “old reliables”, alcohol and tobacco as two areas that may not see as much of an excise increase as they typically do.

“There needs to be a balance between measures that support a healthy Ireland – which is a key concern right now – and measures that encourage wholesale smuggling of alcohol, cigarettes and other goods.”

5. Tax hikes are not expected (in fact, we might see some drops in tax)

While dramatic drops in income tax or boosts to social welfare benefits may not be affordable, Hughes highlights the importance of even modest changes.

For some people, an extra €2 or €3 a week is the difference between just about surviving, and being able to afford some little luxury for themselves or their kids.

Those small measures, that some might consider to be just “crumbs from the table” can make a massive impact on many people’s day to day lives, adds Hughes. “In our newest consumer sentiment survey, one in four respondents said Budget adjustments like these were critically important to their financial circumstances. It would be a serious error if the government didn’t put some money into the economy in this way.”

6. And there’ll be other positive signals too

Hughes points to some other smaller signals that people can expect tomorrow. “If Brexit proves a smooth ride, we’ll be looking at an election next year, so the Minister will want a Budget that gives flexibility and drives some positive thinking toward the government too.”

Some of these small-scale, positive-impact changes may include tweaks to childcare benefits, the implementation of the social welfare Christmas bonus for December 2019, and spending changes to the healthcare sector.

“We’re in stormy waters right now with Brexit,” says Hughes. “You don’t want any massive changes in the direction of your boat, but equally you want your boat to be watertight, and I predict that’s the way the Minister for Finance will be thinking tomorrow.

Want to know how tomorrow’s changes will affect your pocket?’s Budget 2020 tax calculator, in partnership with KBC, will be in action as soon as the Budget is announced. You’ll find it here.

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