LAST UPDATE | 9 Jul 2024

A BUDGET PACKAGE OF €8.3 billion for October’s budget has been signed off on by ministers this afternoon. 

Minister for Finance Jack Chambers published the Government’s Summer Economic Statement, which outlines the parameters for the Budget which will take place Tuesday 1 October this year. 

Chambers outlined that additional public spending will amount to €6.9 billion, of which taxation measures will amount to €1.4 billion and new spending of €1.8 billion.

Workers are a priority, said the finance minister, who said “they need to get a break in Budget 2025″.

“This isn’t a giveaway budget. It’s a budget that, in terms of current expenditure… replicates what happened last year,” he added. 

Income tax 

A key objective will once again be to help avoid a situation where workers and other taxpayers end up paying a higher percentage of tax as their income grows, Chambers said. 

He said the government need to ensure that those people “get a break” as their wages increase. 

Low to middle income earners will be a priority, he added, stating that the measures need to be progressive. He said nothing has been worked through as of yet. 

One-off measures

Inflation is now at 2.3% in Ireland, which means any one-off cost-of-living measures will be on the lower scale, Chambers said. He said no decisions have been made yet on whether there will be the likes of energy credits this winter. 

“We’re in a much different inflation environment than they were last year and indeed, the year before. We want to see the wholesale energy prices passed on to consumers there has been some progress on that, but clearly we need to see more of that over the over the coming period,” said Chambers. 

Any further cuts to prices from the energy companies will dictate what’s possible or what the level of intervention might be for later on in the year or indeed the next year, said the finance minister.

“But I think any further intervention on one-off measures would be a much lower scale than we saw in previous years,” he added. 

In the run up to October’s budget, the government is adjusting the expenditure strategy for 2025 and increasing total expenditure by 6.9%.

Ministers said this is to accommodate higher capital spending and to provide additional public services against the backdrop of a larger-than-assumed population.

Speaking about housing, Chambers said the government’s ambitions will be delivered with the increase in capital spending.

He confirmed that increased the renters’ tax credit upwards from €750 is under consideration in terms of the tax package.

There is a need to further support renters, he said, adding that he knows renters face high rents in many parts of our country but said it will have to be balanced out with any income tax and USC changes there might be. 

Population changes 

Public Expenditure Minister Paschal Donohoe told reporters today the strong growth in employment has been matched by the growing nature of the population, which is well above the estimates. 

To put this in context, he said the population is now 180,000 above what was predicted in the expenditure strategy published in 2021. By this time next year, the population will have reached what was predicted for the end of this decade, the minister states. 

Minister Chambers says he’s confident that the strategy set out in the summer economic statement places Ireland in the best position possible to address any challenges. pic.twitter.com/aWyErgjm5s

— Christina Finn (@christinafinn8) July 9, 2024

Health spending and accountability

An additional €1.5 billion in funding for the health service for this year is being provided for to account for the need for better quality healthcare, the complexity of providing health services, and the legacy impact of a post pandemic and heightened inflationary environment.

Donohoe outlined today an additional €1.2bn will be allocated for the health service for 2025. He said agreement has been reached with the HSE that will result in the additional funding translating into improved delivery and improved outputs. 

The agreement reached with the HSE includes “controls” so as to ensure that the budget for this year and next is adhered to, said the public expenditure minister. 

Donohoe said the HSE will have to “stay inside agreed staffing levels across this year and next”, stating that there are also commitments made regarding the level of agency staff and over time, and how that will be managed for this year and next year. 

Ministers Jack Chambers and Paschal Donohoe outlining the parameters for Budget 2025

Chambers says we are at full employment with Dept Finance John McCarthy stating Ireland is an outlier in terms of jobs growth from 2019 to 2024 with growth of 340,000. pic.twitter.com/UrtZwb3suV

— Christina Finn (@christinafinn8) July 9, 2024

Corporation tax risk

Speaking about corporation taxes, Chambers said Ireland is “highly exposed” to volatile corporation tax.

“My department estimates that around half of total corporate tax receipts are potentially windfall in nature, and therefore can’t be relied upon,” he said.

John McCarthy, the chief economist for the Department of Finance said that corporate tax concentration has increased, with €1 euro in every €7 coming from 10 companies last year.

“This is a budget that tries to get the balance right,” said Donohoe, who outlined that the two funds, which will have large deposits for the future, will almost be comparable to all the spending for next year. 

The newly appointed finance minister is straight into the deep end in his new role and will have to contend with a number of demands including calls for the VAT rate to be restored to 9%, pushes to slash the USC, and demands for changes to inheritance tax. 

All eyes are on the spending rules, which limits increases in State spending to a maximum of 5% a year, and has been breached again this year.

Bodies such as the Central Bank and Irish Fiscal Advisory Council (IFAC) have issued serious warnings about the consequences of spending too much public money.

Economics Professor at Trinity College Dublin Barra Roantree has said that while tax receipts are coming in strongly, they are very concentrated.

“The difficulty that’s faced is that the economy is doing well, tax revenues are coming in, and because of this, we need to be careful in increasing the rate of spending too much,” he told RTÉ’s Morning Ireland.

Roantree said that going over the 5% spending rule risks overheating the economy, which happens if “you try to make the economy do too much”. 

He also said that ramping up spending at a very fast level could also leave Ireland exposed to decisions or events elsewhere. 

“There’s a US presidential election later in the year. It’s unknown if Donald Trump gets back into office what he might do and what he might demand that US companies do in terms of where they pay their corporation tax, so we could see some of those revenues disappear. We know they’re not likely to be with us forever.”

There have also been big spending overruns already, particularly in the Department of Health, he said.

“Part of the reason for this is because we have an aging population, so we’re having to run to stand still in the provision public services.

“So this doesn’t leave scope for lots of additional giveaways, and that’s really what the advice is about. Prioritising what’s important is what the government needs to do, rather than trying to give something to everyone in the run up to an election.”

However, with this being the last Budget of this Government, it is expected that some pre-election big ticket items will be on the list. 

According to Chambers, the Government intends to “give workers and families a break” in terms of income tax reductions in the Budget.

In his first press conference as Finance Minister, he also stressed that the main focus will be on sustainability. 

Chambers said the Irish economy is currently in a “good space” but that “the Irish people want to see that sustained for many years, not to see a cycle where we are giving something in one year and that’s undermined in a few years’ time.”

Although inflation has come down, Taoiseach Simon Harris said some prices remain high and this is something that will be factored into the budget negotiations. 

“Inflation has levelled at 2% but there are certain aspects of the cost of living which are still persisting, in terms of the prices of certain goods and services that people face,” Chambers said last week.