Budget 2022: a Journey to a Social and Economic Recovery?
On Tuesday, the Minister for Finance, Paschal Donohoe, and his counterpart, the Minister for Public Expenditure and Reform, Michael McGrath announced Budget 2022. In their speeches, Minister McGrath noted that the Budget presented would help Ireland secure its “social and economic recovery”, while Minister Donohoe remarked that “this recovery must also deliver more homes, better progress on climate change and help with a cost of living that is rising”.
Minister Donohoe detailed a positive macroeconomic outlook for Ireland, highlighting expectations that more than 400,000 jobs will be added to the economy between this year and next, while employment overall is expected to reach and exceed pre-pandemic levels over the course of 2022. Minister Donohoe also noted that by 2022, Ireland will only be borrowing for capital spending, highlighting the revision of his Department’s Summer Economic Statement forecast of a combined deficit of €34.5 billion for 2021 and 2022, to a new figure of €21.5 billion, representing a reduction of 40%.
In this context, public spending for 2022 will amount to €86.7 billion, reflecting a core current expenditure growth of 4.6% in line with the trends of growth in the Irish economy. The total Budgetary Package announced amounts to €4.7 billion in line with the Government’s Summer Economic Statement, which has not been changed due to improved Exchequer performance in recent months. This €4.7 billion is worth €4.2 billion in expenditure measures and €0.5 billion in tax measures.
What Measures are Included in Budget 2022?
Budget 2022 seeks to address many of the core issues facing Ireland including in health, housing, and climate action. There are also important measures included in relation to social protection, education, workers, and businesses, among other key policy areas.
To address Ireland’s housing crisis, Minister Donohoe announced a new 3% Zoned Land Tax which aims to incentivise the use of land for building homes. Meanwhile, €174 million has been allocated to supporting the direct delivery of over 4,000 affordable homes. The Budget also commits to providing an additional 14,000 HAP tenancies and 800 RAS tenancies, as well as 11,820 new social homes, 9,000 of which will be new build homes. €2.5 billion will be made available for the delivery of social housing.
To address the climate challenge, carbon tax will be increased by €7.50 per tonne to €41. The funds generated by this tax increase will be solely used to fund further actions to mitigate climate change. A €202 million fund will be directed towards improving people’s home energy efficiency, while €174 million will be directed towards broader energy efficiency measures. The existing €5,000 relief scheme for the purchase of Battery Electric Vehicles has been extended to 2023, while the Accelerated Capital Allowance Scheme for gas and hydrogen powered vehicles and refuelling equipment has also been extended for a period of three years. Vehicle Registration Tax will also be increased, and other funds will be directed towards initiatives such as installing EV charging infrastructure and the continued roll-out of the National Broadband Plan. Related to Climate, €3.4 million has been made available to the Transport sector, €1.4 million of which will be dedicated to the further development of public transport network, both new and existing. New projects mentioned by Minister McGrath in his Budget speech included BusConnects, MetroLink and the DART+ programme.
€3.7 billion has been allocated to the Department of Further and Higher Education which will see a €200 increase to the Maintenance Grant provided to Third Level Students, while qualifying thresholds for the grant will also be expanded. The Budget has committed to the creation of 20,000 new further education and training places, 7,600 places of which will go toward addressing the key skills areas of the economy. 3,320 additional CAO places have also been provided for.
The Employment Wage Subsidy Scheme, meanwhile, has been extended into the new year but will be wound down. The 9% VAT rate for the hospitality sector has been retained until August 2022, while the Employment Investment Incentive Scheme has been extended and reformed. Tax reliefs have also been announced to the tune of 32% for investment in digital gaming, up to €25 million per project.
Meanwhile, the government has also announced wide ranging increases to social welfare spending, while workers will see the minimum wage rise 30c to €10.50 per hour. The Government has also moved to support remote working by providing for an income tax deduction amounting to 30% of vouched expenses for heat, electricity, and broadband incurred while working from home. The Budget has also accounted for €520 million in income tax reductions including an increase to the standard rate band of €1,500 and an increase of each of the personal tax credit, employee tax credit, and earned income credit by €50. The USC ceiling of the second-rate band will also increase from €20,687 to €21,295.
Finally, the Health crisis will be addressed by €22.2 billion of funding. €250 million has been made available to tackle hospital waiting lists, while €30 million has been allocated to providing patients with greater access to high-tech drugs.
In its statement, the Irish Fiscal Advisory Council (IFAC), Ireland’s independent body in charge of providing budgetary oversight, stated that by the Government sticking to its spending plans despite increased revenues, it “has the economy on a more prudent path that will reduce borrowing and the debt ratio in the years ahead”.
Despite this, however, the Budget received staunch criticism from opposition parties, with Social Democrats co-leader Róisín Shortall asking the Government, “where is the ambition? Where is the vision? Where are the bold ideas?”. The Government also received criticism from Sinn Féin, the largest party in opposition, with its Finance spokesperson, Pearse Doherty stating “never has so much been spent to achieve so little – no answers, no urgency, and no leadership”. Despite these criticisms, Minister Donohoe has remained steadfast in standing up for the decisions made related to Budget 2022, highlighting how going beyond €4.7 billion would have been far “too risky”.
It is evidently too early to tell what the lasting ramifications of Budget 2022 will be. What is certain, however, is that the challenge laid before the Government is momentous, as it seeks to secure Ireland’s social and economic recovery from the COVID-19 pandemic.