Surging tax revenues will fund a giveaway budget that will increase public spending by over 6 per cent, and include a modest tax-cutting package but save most of a large surplus, the Government announced on Tuesday.
Minister for Finance Michael McGrath and Minister for Public Expenditure Paschal Donohoe unveiled the Summer Economic Statement at Government Buildings, setting the parameters for the October budget – which they said would be the second-last budget before the next election.
The two budget Ministers said they would continue their “prudent” management of the public finances but acknowledged there would be further “one-off” measures in the October budget, in a repeat of last year’s model.
But the two men declined to say if this year’s “one-off” measures – which do not entail permanent increases in public spending budgets – would match or exceed last year’s level of €4 billion.
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The plans outlined again breached the Government’s self-imposed expenditure rule for the second year in a row by going beyond a 5 per cent spending increase.
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Mr McGrath said that, with changing economic circumstances, including an unanticipated spike in inflation, the spending rule needed to be “adapted” and “flexible”, and he played down the impact of spending increases on inflation.
“We think that is absolutely warranted in the context of an economy next year whose national output will be in the region of €600 billion in GDP [gross domestic product] terms – this is an additional €1 billion which will have a very, very modest impact on the overall level of inflation,” he said.
“I am absolutely satisfied that this strategy meets the prudence test,” he added.
Mr McGrath said that the Government would bring forward proposals to “future-proof the public finances” by setting up a new fund to save windfall corporation tax revenues for the future. Both Ministers stressed the need not to increase permanent spending commitments on the back of corporation tax revenues that are likely to decline in the future.
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But the modest level of the tax package – about €1.1 billion will be set aside for adjusting tax bands and thresholds – is likely to disappoint some Fine Gael TDs who had hoped for a bigger tax-cutting package after three of the party’s junior ministers wrote an article in May advocating for tax reductions for “middle Ireland”.
Half-year exchequer returns published earlier on Tuesday by the Department of Finance show the Government collected just under €41 billion in taxes during the first six months of the year, 11 per cent or €4 billion more than the same period last year. The increase was driven by continued growth in corporation tax, income tax and VAT.
