Competing demands on state purse strings for Budget 2023

AS we come down to the final days before Budget 2023 is announced on Tuesday, immense challenges are pulling the Government purse springs in every direction.

There are few who are not concerned about making ends meet this winter, as Ireland is facing its worst cost-of-living crisis since the 1970s. After two successive budgets focused on fighting the fires ignited by Covid-19, alarms are now sounding for Budget 2023 to deliver support to people who are financially struggling.

The sense of urgency to act on the cost of living may be highlighted by the fact that Budget Day has been brought forward by two weeks from its usual date in October.

While rising inflation may now have overshadowed the pandemic as the public’s main concern, Covid-19 is far from a distant memory. The budget will have to account for fears that this winter could bring another wave, and renewed pressure on a health system already struggling with overcrowding, understaffing, and long waiting lists.

And of course, who could forget an ongoing housing crisis and climate emergency neither of which have gone away, nor have the significant financial demands in tackling them.

It has already been confirmed in the Government’s Summer Economic Statement that the 2023 Budget package will include €6.7bn in extra public spending, with around €1bn of that allocated to implement tax changes.

A separate once off cost-of-living package will be announced alongside the budget, to the tune of €1.5bn and €3bn.

The government’s summer statement showed an exchequer surplus of €4.2bn at the end of June this year, which compares favourably with a €5.3bn deficit at the same time last year. It is mostly driven by strong growth in tax revenue and reduced spending on Covid-19.

The extra change in the government’s pocket has given more firepower to tackle the current challenges posed by rising inflation, and has funded a bigger package than originally expected for Budget 2023.

Cost of Living

Thousands took to the streets in Cork last weekend to demand supports from the government, amid the spiralling cost of living.

Already coined the ‘cost-of- living’ budget, Taoiseach Micheál Martin has said next week’s announcements will contain “substantial supports” for people who are worried about meeting energy bills, food costs, and everything in between.

There will be a dedicated cost-of-living package revealed on Tuesday alongside the budget, with a forecasted spend of anywhere between €1.5bn to €3bn.

On energy, customers can expect an additional electricity credit before Christmas, the first of three promised over the next several months to ease soaring costs of domestic bills.

Tánaiste Leo Varadkar is also understood to be working on how an energy support could be extended to businesses that need it.

The Government seems to be against the idea of capping energy bills, but it is considering a windfall tax on the profits of energy companies, which Tánaiste Leo Varadkar said would be backdated to before the energy crisis.

Funds collected through the windfall tax could then be used to further ease financial burdens on households. The government has already said that it will be using dividends from the State-owned ESB’s €390m profits for the first half of 2022 to implement cost-of- living reliefs and supports.

It is also expected that cost- of-living measures will include an increase to the fuel allowance, and an expansion of who can benefit from it.

Reductions in public transport fares of around 20% for adults and up to 50% for students and young adults which came into effect earlier this year have proven popular, and are expected to be retained in the budget.

Childcare

It is expected that a reduction in the cost of childcare is coming too, as government leaders have promised that childcare will be a major focus of Budget 2023.

Minister for Children Roderic O’Gorman has said he is aiming to reduce childcare fees by 50% over the next two budgets, with talks of an initial €200 decrease in childcare costs from next year being announced in next week’s budget.

Health

Health has been one of the core focuses of budget spending in recent years, as the Government’s biggest budget ever in 2021 spent €8.5bn on tackling the pandemic, and a further €3.8bn invested in supporting existing services went in particular towards the Department of Health.

The response to Covid-19 continues to impact spending on the health sector, as almost €11bn has been spent in the first six months of this year on health, “in dealing with the challenges of Covid-19” read the Government’s Summer Economic Statement.

Now looking ahead to Budget 2023, Covid-19 remains a lesser but still present strain on the health service, on top of ever-growing waiting lists, overcrowded emergency departments, and a crisis in recruitment and retention of healthcare professionals.

The INMO in its pre-budget submission has called on Health Minister Stephen Donnelly to publish a fully funded winter plan to coincide with Budget 2023 next week, and is demanding “meaningful and targeted interventions” to reduce pressure on overcrowded and understaffed hospitals this winter.

The health minister has said that a comprehensive winter plan is being finalised and will form part of the department’s budget submission, and it is understood he is also seeking funding to make a dent in lengthy hospital waiting lists.

Having just announced the abolishment of all public in-patient charges for children under 16 in recent days, Mr Donnelly has indicated that adult inpatient and outpatient charges could also be abolished in 2023, subject to budget funding being allocated.

Housing

While the cost of living is the number one concern this Budget Day, the housing crisis still looms large in many people’s minds.

Under the Government’s Housing For All plan, there is already €4bn earmarked in 2023 for investment in housing, the same amount that was budgeted for this year.

The Housing Minister Darragh O’Brien has also confirmed that State spending of €1bn on the Hap and rental accommodation schemes will continue under the next budget.

Cork Simon has called on the government to tackle homelessness in the budget by investing in vacant homes for social housing, doubling funding for homelessness prevention work, and committing to a referendum on the right to housing.

It is expected that the Budget 2023 will have something for tenants and landlords, to address challenges in the rental sector.

Renters are expected to benefit from some kind of support, which could come in the form of a tax credit similar to the one abolished in 2017.

There is also expected to be an incentive for landlords to remain in the rental market, in the form of a reduction on the amount of tax payable on rental income.

Education

Minister for Education Norma Foley is seeking more money for teachers and special needs assistants in the upcoming budget, to further reduce pupil-teacher ratios.

Ms Foley has also said she is working to try and obtain funding in the budget to accommodate 6,000 students who used to avail of a concessionary place on the school transport scheme, but who were left without a seat on the bus this year when the waiving of fees increased demand for the service. Meanwhile, Junior Minister for Special Education Josepha Madigan has said she is fighting for extra funding in Budget 2023 to open more special classes and special school places for children with additional needs.

At third level, it is expected that students will see a reduction in the €3,000 contribution fee, which if approved would apply to the current academic year.

Minister for Higher Education Simon Harris has also said they are examining an improvement to college grants, such as SUSI, which are currently provided to more than 40% of students in higher education.

Hospitality

Finance Minister Pascal Donohoe has indicated that a special 9% Vat rate for the hospitality sector, reduced during the pandemic, may be coming to an end next year when taking into account reported price gouging by hoteliers in recent months.

Mr Donohoe has said he is examining the possibility of reverting to the 13.5% Vat rate in the budget. This proposal has been met with stiff opposition by those in the hospitality sector, who say that there will be severe consequences for already struggling businesses.

However, the finance minister warned that some hotel pricing over the summer has “undone some of the good work” of the Government in supporting hospitality businesses to stay afloat during Covid-19, and that any price gouging will be taken into account when making budget decisions on Vat.

Climate

The government has a legal obligation to increase taxes on diesel, petrol, peat, kerosene and natural gas in the budget, although there have been calls to delay carbon tax increases in light of rising fuel costs since the Russian invasion of Ukraine.

Finance Acts have set binding targets for increasing carbon taxes out to 2030, which should see increases in Budget 2023 that would equate to an additional €1.28 or €1.48 per 60 litre fill of petrol or diesel. The significant rise in fuel prices caused by international events has already led the government to reduce rates of mineral oil tax applied to diesel and petrol, and delay tax increases on home-heating oil until May to avoid being introduced during the colder winter months.

Fine Gael are now calling for increases on other fuels such as petrol and diesel to also be delayed amid the cost of living, but the Green Party insists that carbon taxes should go ahead, as the climate crisis has not gone away.

Pay and Income Tax

It has already been announced that a new national minimum wage of €11.30 per hour will be introduced from January 2023, a rise of 80c.

This will see an estimated 170,000 workers taking home €31.20 more per week (based on a 39-hour working week).

There has also been much discussion about proposed changes to income tax brackets and thresholds in next week’s budget. The idea of a ‘middle income’ tax rate of 30% was recently floated by Tánaiste Varadkar, but was rejected by ministers Donohoe and McGrath. It is more likely that the threshold for the higher 40% income tax rate will be increased in the Budget, to an expected new entry earning level of €39,300.

In last year’s budget, Mr Donohoe increased the income band for the 40% rate by €1,500. Currently, workers earning over €36,800 hit the higher 40% tax rate, so the change if implemented would mean a further €2,500 of earnings taxed at the lower 20% income tax rate.

The increase would see someone earning €50,000 a year taking home an extra €500. Ministers may also raise personal tax credits, as well as increasing the PAYE credit.

Social Welfare and Benefits

There are indications that next week’s budget announcements may include once-off double payments for welfare recipients before the end of the year including those receiving child benefit, working family payments, the state pension, jobseeker’s allowance, carer’s allowance and disability payments.

It is being predicted that an increase of about €10 to weekly social welfare benefits will also be introduced.