LAST UPDATE | 4 Jul 2023
A SPENDING PACKAGE of €6.4 billion for October’s budget has been signed off on by ministers this afternoon.
Minister for Finance Michael McGrath published the Government’s Summer Economic Statement, which outlines the parameters for the Budget which will take place Tuesday 10 October this year.
McGrath outlined that the government is planning a budgetary package of approximately €6.4 billion in October’s budget, comprising an additional €5.25 billion in core spending and a tax package of €1.15 billion.
Core spending will stand at 6.1% – a “slight deviation” of the 5% spending rule which the government in the past set out.
Due to inflation expected to be above 2% next year, the increase in core spending is “justified” and “absolutely warranted”, according to the minister.
McGrath said he is “convinced it is the right strategy to adopt”.
A ‘non-core’ expenditure provision of €4 billion will be put in place for 2024 for temporary measures.
This will help provide humanitarian supports for refugees from Ukraine and more limited Covid-19 provision in respect of certain potential continued requirements.
Last year, the Government announced an €11 billion budgetary package, with €6.9 billion in Budget 2023 and accompanied by €4.1 billion in one-off measures to help with the rising cost of living.
When asked if there will be one-off measures to deal with the rising cost of living and high inflation, both ministers failed to rule it out.
McGrath said there was “no decision” made yet on one-off supports, stating that it is “too early” to predict the level of inflation for the autumn.
However, he said it is “likely there will be some measures”, but it will depend on the economic circumstances following the summer.
Minister Paschal Donohoe outlining some additional expenditure. pic.twitter.com/Y88zOw42j2
— Christina Finn (@christinafinn8) July 4, 2023
Today’s Exchequer figures show that tax revenues to end-June were €40.9 billion. This was 10.9% higher than last year, but also is heavily driven by volatile corporation tax receipts.
Corporation tax receipts amounted to €10.35 billion to end-June, up by €1.8 billion on last year due to increased profitability in the multinational sector and in line with expectations.
The Exchequer returns show grounds for “cautious optimism”, said McGrath.
However, he highlighted the precarious nature of the revenue, with three firms accounting for one third of all corporate tax receipts.
“The best way to ensure that we retain the fiscal firepower to address the issues of today and the challenges on the horizon is by maintaining a sensible budgetary policy that balances investment in our public services and infrastructure with the long-term sustainability of our public finances.
“Shortly, I will bring proposals to Government on the establishment of a long term savings fund and a public investment fund to be utilised during an economic downturn,” said the finance minister.
The Budget will be used to establish and build-up a long-term savings fund, to build-up a public investment fund buffer, to reduce debt, and for increases in capital investment.
The Budget will also provide for non-core expenditure, including humanitarian supports for refugees from Ukraine.
Discussions in relation to the Summer Economic Statement went on over the course of 5 weeks with several rounds of engagement at Party Leader level with Ministers McGrath and Donohoe.
Minister for Finance Michael McGrath said the Summer Economic Statement strikes a “delicate balance” of providing enough support for society while not adding to inflationary pressures.
Arriving for Cabinet this morning, he told reporters that an agreement on the statement was reached yesterday evening.
“Striking that right balance has been a challenge but I’m confident that we have now arrived at an appropriate budgetary package for Ireland which ensures that essentially windfall revenues that we are currently collecting can be protected.”
McGrath said he will bring a further memo to Cabinet in the coming weeks seeking agreement on the overall architecture of setting up a long-term savings fund, a public investment fund, and making provision to ensure national debt becomes more sustainable.
However, the minister said said no decisions had been taken on potential further temporary supports that could be included in the autumn budget for people struggling amid the cost-of-living crisis.
“The budget is still three months away and those decisions will be made closer to the time once we take account of the economic circumstances, the inflationary situation, at that point in time.
What the Summer Economic Statement sets out essentially is what the budget package will be for 2024, the core budget package in terms of recurring expenditure items and indeed the taxation package as well.
“There’ll be a whole series of detailed negotiations then that will result in a lot of individual decisions then to decide what makes up the budget package but this does set the parameters of the budget, and it does provide the guardrails and really does impose a certain level of discipline that the budget will now come within the scope of what hopefully will be agreed today in terms of the Summer Economic Statement.”
Speaking to reporters yesterday, Public Expenditure Minister Paschal Donohoe said he is very conscious that while inflation is now showing some signs of slowing down, prices are still rising in some cases.
“That impacts fundamentally then on the budget decisions that we will make,” he said.
Donohoe also said he is confident the Government can make income tax changes without adding to inflation.
He said he believed that whether it was tax indexation or tax cuts, that it felt the same to the taxpayer – adding that a decision had not been made on the size of the budgetary tax package.
He added: “Last year, for example, when we moved the standard rate cut-off point up to €40,000… that did allow taxpayers to keep a larger share of their after-tax income, and whether that is indexation or a tax deduction, for the taxpayer I think it felt the same.”
He said the shift to tax bands was possible to do “at a level that does not create an inflationary risk, and I’m confident that we’ll get the balance right between all of that when we prepare the Summer Economic Statement”.
Reacting to the statement today, Social Democrats Finance Spokesperson Róisín Shortall
said the headline figures reflect a healthy fiscal position – but “mask inherent weaknesses in the government’s approach”.
“A key concern – and one which is acknowledged by the government – are gaps in labour, housing and infrastructure which are causing severe constraints on the economy,” she said.
“It is regressive to stack the tax system so that those on higher incomes benefit disproportionately from tax cuts. This is particularly unconscionable in the middle of a cost-of-living crisis when low, and middle, income earners are making choices about feeding their families and heating their homes,” she added.
Meanwhile, Labour Finance spokesperson Ged Nash called on the finance minister to clarify how much will be spent on one off measures.
Additional reporting by Lauren Boland and Press Association
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