A budget package is all about priorities. And it is crystal clear that the priority of Budget 2025 is getting the Coalition re-elected.
Over the past week the extent of the cost-of-living supports to be paid out to household and businesses, mostly before the end of this year, has climbed to about €2 billion, almost half of it in two universal payments – energy credits and child benefit – which will give cash to rich and poor alike.
Last Friday at a press briefing budget Ministers Jack Chambers and Paschal Donohoe said that with inflation coming down, this package of once-offs would not be on the scale of those in the previous budget.
Four days later the total package of once-off spending is well above the €1.5 billion flagged in recent weeks and not far below last year’s €2.3 billion. Given the sharp fall in inflation in the meantime, this is not much of a reduction. Adding in temporary tax measures, the entire cost-of-living package this time around comes to about €2.2 billion.
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It seems the publication of the pre-budget figures last Saturday, outlining the large surpluses in prospect, set off a final push from spending Ministers and party leaders for more.
The Coalition leaders can, as the saying goes, resist everything but temptation – and there are no signs of a more prudent approach on the Opposition benches.
This splurge of once-off cash is not a good use of public money. True, prices remain high and many lower earners still find their budget squeezed.
No one would argue that the double welfare payment at Christmas should not be renewed each year
But there are ways of targeting money at these groups through the welfare system – and, unlike in the months after the crisis hit – the Coalition has had time to work on how to do this. Decent ideas, such as a second tier of child benefit for lower income households, have not been advanced.
Instead, the Government has chosen to go big, giving much of the money out in the two payments that benefit households at all income levels – energy credits and child benefit – meaning much of the benefit goes to those who don’t need it. Households who do require support are left relying on once-off cash for much of this. Temporary measures don’t solve permanent problems.
And the Coalition has ensured that whoever forms the next Government will be under huge pressure to repeat the payments next year, because households have become used to them. No one would argue that the double welfare payment at Christmas should not be renewed annually. But are households to expect double child welfare weeks and energy credits every year as well?
There is no wider strategy behind the cost-of-living package, no message of where the Coalition wants to take the country. The better off will just spend the extra cash, risking a boost to inflation in some areas, or stick it in already-bulging savings accounts. It will give a temporary boost to an economy that does not need one.
What many households would surely welcome is delivery of better services in areas such as health and education, rather than a temporary cash boost. But improving services takes time and there is a trip to the polling booths coming.
This largesse is possible because of the extraordinary health of the public finances, which emerged from the Covid and cost-of-living crises in good shape. The mainstream budget measures for next year – the permanent tax and welfare changes – have been broadly kept to levels signalled over the summer, though the tax package has crept a little higher.
Much of this is required to adjust the tax and welfare systems for inflation.
The Irish Fiscal Advisory Council (Ifac) argues that the Government should be maintaining tighter control of permanent spending – and that not doing so risks pushing up inflation.
The Government says that the rising population and the needs of the State require more spending in areas such as housing, water and energy and on public services. The right balance is hard to strike, in an economy at full capacity, though the investment needs are obvious.
Billions extra have been allocated here and in his speech the Minister for Finance sent a message to foreign investors and more widely about addressing key shortages in housing, water and energy, helped by funds from Apple and selling down the State’s AIB shares. To make these commitments credible, better and faster delivery will be essential, overcoming familiar problems in areas such as cost control and planning. This is not a matter for budget day, but the Coalition has allocated billions of additional cash and has yet to outline detailed plans for spending it and how it will ensure delivery.
The size of the available cash on future budget days will shrink and the decisions will get a lot more difficult
Leeway remains in the budget sums. The Government continues to put money into two funds to support future spending, and is targeting a significant budget surplus for next year. This is welcome and is starting to build in some resilience to the public finances.
However, corporate taxes and much of the income tax base are reliant on a small number of big companies. The Department of Finance estimates that by subtracting the froth from the corporation tax take – including the Apple money – the public finances will be in deficit next year, in contrast to a headline surplus of close to €10 billion.
It has been making this argument for some years and corporation tax keeps on rising. Perhaps the wolf will arrive one year, or at least the huge surge in corporation tax payments will end. Either way Ireland’s exposure to the health of the pharma and ICT sectors is obvious – and news on Tuesday of more job cuts at Pfizer illustrates how quickly things can change.
Apart from allocating a lot of cash to future important investments, the budget looks unfocused. The payments to households have shades of the Celtic Tiger “payback time” approach.
The Coalition can ride the two horses of prudence and pre-election generosity for one more year. But you would suspect that, before long, the size of the available cash on future budget days will shrink and the decisions will get a lot more difficult.
