We’ll get a better look at the Government’s budgetary plans and general economic outlook with the publication of the Summer Economic Statement (SES), now part of the pre-budget choreography.
Broadly speaking, the SES sets out the Government’s financial position ahead of the next budget, in other words how much it has in the kitty for new spending and tax measures. The speculation is that the Government will signal an additional budgetary spend of €5 billion, comprising €4 billion in spending measures and €1 billion in tax cuts.
Around the same time, half-year exchequer returns, to the published by the Department of Finance, will point to the relative health of the public finances. June is typically the second-biggest month for corporation tax, which delivered a record €22 billion in receipts for the exchequer last year. The June numbers will signal whether we’re in for another record year.
Minister for Finance Michael McGrath is scrambling to keep a lid on the Government’s budgetary package, which is expected to breach the spending rule, which limits net spending increases to 5 per cent per year, for a second year in a row. That said, the breach is expected to be limited, still within the 6 per cent bound.
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With the exchequer awash with tax receipts from the business sector and some in the Cabinet whetting the public appetite for tax breaks, this is a difficult political sell. There is also the ongoing cost-of-living crisis combined with pressure on mortgage holders from higher interest rates.
The Central Bank of Ireland and the Economic and Social Research Institute are warning, however, that a significant Government spend could pose an overheating risk with the economy running at full employment and close to capacity in many sectors.
Ironically, it was perhaps easier framing budgets during Brexit or Covid as the ministers for finance could push back on calls for additional departmental spends on the grounds that the country was facing into a crisis.
McGrath is likely to use the SES to warn about the overheating risk facing the economy and how an imprudent budgetary spend might undermine efforts to rein in inflation. With elections possibly around the corner, he’s going to have to fight hard in Cabinet.
