Cost of living budget postponed to September amid strong tax revenues

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Ministers agreed to bring forward Budget Day to September 27, two weeks earlier than planned, with an increased envelope of €6.7 billion to help offset the cost of living crisis.

The decision was made at a Cabinet meeting on Monday afternoon ahead of the release of the summer economic statement, which sets out broad parameters of funds available for spending and tax measures.

The government has come under pressure to introduce more measures to help households in the face of soaring inflation. He has so far resisted introducing new backers ahead of the budget, originally scheduled for October 11.

Opposition parties criticized the government’s decision to wait so long.


Summer Economic Statement: Key Points

  • The 2023 budget will see €6.7 billion in new spending and tax measures, an increase of €1.7 billion
  • Core spending will reach 85.8 billion euros next year, an increase of 6.5%
  • 1.05 billion euros were devoted to tax measures, i.e. double the amount planned
  • The planned changes to tax brackets and credits will aim to ensure that workers are not “pulled” into higher tax levels due to wage inflation. The exact change in tax brackets was not detailed
  • There will be 2.7 billion euros for new spending on one-off measures to tackle the cost of living, increases in social benefits and a new public wage agreement
  • Of this, €400 million has been earmarked for spending measures – including cost-of-living measures – which could come into force before the end of 2022
  • An additional €3 billion will be used to cover additional expenditure needed to respond to demographic changes, the National Development Plan (PND) and existing public sector wage commitments

Details of the Summer Economic Statement were released Monday by Finance Minister Paschal Donohoe and Public Spending Minister Michael McGrath.

The statement noted the vulnerability of the economy to high public debt, especially when coupled with financing an aging population, climate change mitigation, digital transition and the implementation of Sláintecare.

Concerns have also been raised about serious economic disruption to the export market if Russia were to completely withdraw its gas supplies from Europe, in retaliation for EU sanctions imposed following the ongoing invasion of the Ukraine.

Despite this, the economy seems to have recovered well from the Covid-19 pandemic.

Budget surplus

Figures from the Ministry of Finance show that the state will register a slight budget surplus for 2022 compared to the previously projected deficit.

Higher-than-expected tax receipts generated a public treasury surplus of 4.2 billion euros in June, giving the government more room to spend on cost-of-living measures.

This compares to a deficit of 5.3 billion euros at the same time last year, an improvement of nearly 9.5 billion euros year-on-year.

The latest Treasury yields have been driven by high levels of corporation tax, VAT and income tax as the economy recovers from the impact of the pandemic.

However, senior ministry officials have warned that inflation and the rising cost of living could have a negative impact on tax revenue later in the year.

The department forecast in April that modified domestic demand — its preferred measure of economic activity — would rise 3.9% in 2023.

Inflation, however, hit a new nearly 40-year high of 9.6% in June, Eurostat said last week.

“Unique Circumstances”

Speaking ahead of Monday’s Cabinet meeting, Taoiseach Micheál Martin said: ‘We are going to strike the balance here. The Summer Economic Statement sets the parameters of what is possible.

“We are in a unique economic context resulting from Covid-19, supply difficulties and the balance between supply and demand, which has created its own inflationary cycle.

“And then the war in Ukraine was very dramatic in terms of the impact on energy prices, which rippled through the wider economy.

“So we have to, through a combination of budgetary and temporary measures, try to ease the pressure on people, and that is the goal.

“Now remember, we’ve already taken tax initiatives, around fuel and so on.”

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

“We are aware that people are under great pressure on households etc. So we have to see what we can do by the end of the year thanks to the budget and also how we have the sustainability of wage and tax measures.

Finance Minister Paschal Donohoe said the statement shows what resources are available to the country for next year and how the government will agree a budget based on the cost of living.

He said the budget “will make a difference to the pressures we know so many households are facing right now”.

Ireland

The budget package will reduce the pressure on the cost of living…

“We really appreciate that with the rising cost of fuel, the rising cost of food, so many people are feeling the pressure in their wallets, are really feeling the effect of the rising prices right now,” added Mr. Donohoe.

“But it is a challenge that will be with us for many months. It will be with us next year and because of that the most effective and appropriate way to deal with it is through the budget.

“What we will show later today are the resources available for the budget and we will show, from a tax and expenditure perspective, what are the promises in which the government can make a budget.

“We are very aware of the need for sustainability. – Additional reporting: Reuters, Press Association

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