At least a quarter of Budget 2023′s unallocated spending will be consumed by the new public sector pay deal in the event that one is struck, Minister for Public Expenditure Michael McGrath has admitted.
Budget 2023 is to involve a €6.7 billion package of spending and tax measures. This will be comprised of €5.65 billion in public expenditure and a tax package worth €1.05 billion. However, just €2.7 billion of the public expenditure package is available for new measures.
Appearing before the Oireachtas committee on budgetary oversight on Thursday, Mr McGrath said the cost of a new public sector pay deal and any additional commitments “will have to come out of the overall package of €2.7 billion”.
Sinn Féin finance spokesman Pearse Doherty put it to McGrath that the pay increase of 5 per cent over two years that was offered by the State — but rejected by unions as too low — would cost about €700 million next year.
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Mr McGrath said that “in broad terms” a 1 per cent increase in public service pay would cost about €250 million, which means a 2.5 per cent increase next year would cost about €625 million before knock-on costs such as pension entitlements were accounted for.
Mr McGrath added: “I don’t think we should look at pay in isolation. There will also be a need to take account of what the Government has done to date on other cost-of-living measures and what is planned in the budget. Pay alone should not chase inflation.”
Energy risk
On the war in Ukraine, McGrath told the committee that the cost to the State this year of taking in refugees from that country would be about €900 million-€1.2 billion, but that this would depend on the continuing flow of people.
Also appearing before the committee was Minister for Finance Paschal Donohoe who said the potential for a withdrawal of natural gas supplies from Russia to mainland Europe was “chief” among the risks to the Irish economy.
“While we do not, at present, view this as the most likely development, it constitutes a very real risk nonetheless,” he said. “It would result in a major economic disruption in export markets with severe second-round effects for Ireland.”
Separately, Mr Donohoe said his department was in the process of reviewing the State’s corporate tax receipts to ascertain how much of this revenue is “excess” and may not be relied upon in the future.
“These receipts are, potentially, extremely volatile and cannot be guaranteed at current levels into the future,” he said. “More than half of our corporate tax yield is now paid by just 10 large companies.
“This means that a very significant portion of our tax take is subject to the businesses decisions of a very small number of taxpayers.
“The buoyant corporate tax receipts we have experienced over the last several years are, as such, potentially transient, and are not a sound basis for building permanent future expenditure commitments.
“We cannot repeat mistakes of the past when temporary revenues were used to finance permanent spending. We know what happens when those revenues disappear.
“I have asked my officials to examine how much of the current corporation tax yield may be excess above what should be expected from the economic fundamentals, and we will report in advance of the budget.
“Identifying this excess will enable us to avoid basing expenditure on unreliable revenues while ensuring that Ireland remains a top-tier destination for foreign direct investment.” He added that the outcome “could influence other decisions that we make” on budget day.
