Surging economic growth transforms public finances ahead of Budget 2022

Predictions for the budget deficit this year and next have been slashed
Surging economic growth transforms public finances ahead of Budget 2022

The outlook for the public finances has been transformed by a bounceback in economic growth, with predictions for the budget deficit this year and next being slashed, according to new official figures.

The figures dramatically improve the outlook for the public finances ahead of next Tuesday’s budget, but the two budget ministers insisted last week that they would stick to their original tax and spending targets despite the improving outlook.

The budget deficit this year –using the EU general government balance measure – is forecast to come in at €13.165 billion, according to The Irish Times.

This is compared to the target of €20.285 billion, according to the pre-budget White Paper on the public finances, boosted by strong tax receipts across the board and also spending coming in below target.

With growth set to remain strong going into 2022, the deficit for next year is now forecast, before the budget, to be just over €6.5 billion. This is well below the €14.37 billion predicted in the Summer Economic Statement as the outturn for next year.

Presenting updated economic growth forecasts last week, Minister for Finance Paschal Donohoe and Minister for Public Expenditure Michael McGrath said that despite the stronger trends in the public finances, they intend to stick to the plans they have for Budget 2022 in terms of extra spending and lower taxes.

A total of €4.7 billion in extra spending is planned, but with the bulk of this already allocated, there was to be just €1 billion for additional outlay on measures not yet announced and €500 million for tax reductions.

The unexpected strength of the latest forecasts is bound to lead to late pressure for additional Budget Day measures while still staying within the existing deficit targets for next year.

The Ministers pointed out that the Irish Fiscal Advisory Council (IFAC), the official budgetary watchdog, had warned that the existing budget plans were at the limit of what is prudent for 2022.

The rise in tax revenue reflects a stronger bounceback from the Covid-19 pandemic than official forecasters had expected.

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