Finance minister Paschal Donohoe and public expenditure minister Michael McGrath announcing the Summer Economic Statement today. Sasko Lazarov
summer economic statement

Budget 2023 brought forward by two weeks to 27 September and to comprise €6.7 billion package

The government has published its Summer Economic Statement, which outlines the parameters for the Budget.

LAST UPDATE | Jul 4th 2022, 7:59 PM

THE BUDGET 2023 package will be €6.7 billion, an increase in spending of €2.2 billion on the previous year.

Following Cabinet approval, the government has published its Summer Economic Statement, setting out the parameters of the next Budget.

The details were announced this afternoon by Minister for Finance Paschal Donohoe and Public Expenditure Minister Michael McGrath.

The overall package will be made up of additional public spending worth €5.65 billion, and taxation measures worth €1.05 billion.

Three billion euro of the total is pre-allocated, and €3.7 billion is left to be divided between Government departments.

A planned change to tax bands and credits also aims to ensure that workers are not “dragged” into higher levels of taxation by virtue of wage inflation.

It was also announced that Budget 2023 will be revealed on 27 September, two weeks earlier than normal.

Despite the uncertainty caused by the pandemic, Brexit and the war in Ukraine, the Department of Finance is projecting a “very modest” surplus for this year and next because of the strength of corporation tax receipts.

Donohoe said the State has recorded “further strong performance” in tax receipts in the first half of the year.

But the finance minister warned that this is underpinned by exceptionally high corporation tax revenues from a small number of companies and is therefore subject to “extreme potential volatility”. 

Speaking at a press briefing earlier today, John McCarthy, Chief Economist at the Department, said the economy has been “fairly resilient” despite three “very large shocks” – the Covid-19 pandemic, Russia’s assault on Ukraine and the UK’s withdrawal from the EU coming into effect.

But he noted that there are signs that the economy is beginning to slow and risks to the economic outlook are now “firmly tilted to the downside”.

Last year’s statement had planned on curtailing public expenditure in a bid to claw back money from the Covid crisis. 

However, with the spiralling cost of living crisis and with energy prices continuing to soar, it appears that the Government will have to abandon any money-saving plans to try to reduce the financial burden on the people. 

McCarthy warned that we cannot be certain that corporation tax will continue to perform at “exceptionally high levels”. Corporation tax receipts currently amount to approximately 25% of overall taxes.

“To put that into perspective, a decade ago corporation tax receipts amounted to about €3.5 billion, whereas last year that figure was close to €15.5 billion,” McCarthy explained.

“And of course, that’s just the direct exposure to corporation tax receipts. We know that these large multinational firms are the ones who employ people at higher wages, they’re paying the higher marginal rates, so they’re also paying a lot of the income tax in the State as well. It’s the direct as well as the indirect vulnerabilities that we are concerned about,” he added.

The Chief Economist added that 53% of overall tax receipts come from just 10 firms, meaning just 10 companies account for one in every eight euros received by the State. McCarthy described this as an “incredible level of vulnerability”.

Taoiseach Micheál Martin has said that he will focus on childcare, pensions and rising costs for families as part of the Budget.

Speaking today, Martin said that the government will “get the balance right”. 

“We are in the context of a unique set of circumstances coming out of Covid-19, supply chain difficulties and balances between supply and demand, which created its own inflationary cycle,” he said. 

And then the war in Ukraine has been very dramatic in terms of its impact on energy prices, which has fed into the broader economy. 

“So we do have to, through a combination of budgetary and temporary measures, try to alleviate the pressures on people, and that is the objective.

Martin added: “We do have to think of 2023 and beyond and to make sure that we have sustainability in our public finances and also to see what to do for the remainder of 2022.

We are conscious that people are under a lot of pressure on households and so forth. So therefore we do have to see what we can do between now and the end of the year through the Budget and also how we have sustainability in pay and taxation measures.

Finance Minister Paschal Donohoe said the Budget will “make a difference to the pressures that we know so many households are facing at the moment”.

“We do really appreciate that, with the rising cost of fuel, rising cost of food, so many are feeling the pressure in their wallets, are really feeling the effect of rising prices at the moment,” Donohoe added.

But this is a challenge that is going to be with us for many months. It’s going to be with us next year, and, because of that, the most effective and most appropriate way of dealing with this is through the Budget.

“What we will show later on today is the resources that are available for the Budget and we will lay out, from a taxation and expenditure point of view, what are the promises within which the Government will be able to put a budget together.”

Donohoe also hinted at changes to income tax bands, saying that people should benefit from any ray rises they receive. 

What the government has recognised and all the parties have is that, in an atmosphere in which wages are going up, we do need to help workers that if they get a wage increase to help them deal with the rising cost of living, that they have the opportunity to keep most of the wages that they have earned themselves.

The economic situation is so dire for many people that the Government is looking at bringing forward the date of the Budget.

With reporting by Emer Moreau, Céimin Burke and PA.

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