Budget 2023 has been brought forward by several weeks this year due to the cost-of-living crisis and will be unveiled to the Dáil on 27 September by Finance Minister Paschal Donohoe and Public Expenditure and Reform Minister Michael McGrath. The current backdrop, as well as inflation levels not seen since the 1970’s, will make it a cost-of-living focused budget.
The Government will have to take a targeted approach with their one-off cost-of-living package, to avoid further inflationary pressure. The package is estimated to be between €2bn and €3bn and will help households through top-ups to welfare payments and further energy credits.
Businesses will be helped through the package with measures that mirror the Government’s pandemic response, according to Tánaiste Leo Varadkar. Low-cost loans, grants, and flat payments or energy discounts are all options said to be explored by the Department of Finance. Extensions of both the excise cuts on fuels and VAT reductions on electricity are widely reported to also be included in the package.
The special 9% VAT rate on the tourism and hospitality sectors from the pandemic will likely be retained and the advice of the Irish Fiscal Advisory Council (IFAC) to widen income tax brackets seems to be the preferred option of the Government. Ministers will not reduce Ireland’s dependence on corporation tax from multi-nationals, as advised by the IFAC. Instead, the Department of Finance suggests allocating a portion of the revenue to the ‘Rainy-Day Fund’ to hedge the dependence.
The spiralling energy prices are driving inflation in Ireland, like elsewhere. Therefore, the Government is likely to introduce structural changes to the energy market aimed at reducing the State’s reliance on imported energy to alleviate this issue in the future. The Government has already been granted emergency permission to build a new powerplant in Dublin.
The Irish exchequer’s healthy coffers, thanks to record levels of employment and tax receipts, give it room to manoeuvre. However, the cost-of-living crisis and the forecasts of an impending recession will make it a contentious Budget. The Opposition, industry groups and unions have already made their disagreements with several proposals known, with Sinn Féin’s alternative budget calling for a ‘sea change’ in how the Government approves public housing projects as well as pledging over €1bn for the health system and 100% redress for mica-affected homeowners.
Outside of the cost-of-living responses, other funding commitments may include the Government’s flagship National Development Programme, the Shared Island Fund, climate obligations, and further funding for housing.