With the revised 27 September date of Budget 2023 soon approaching, the coalition government faces the daunting challenge of trying to relieve the impact of the inextricably linked inflation and global energy crises upon the Irish people. Indeed, Taoiseach Micheál Martin spoke to the difficulty of attempting “to reduce pressures on families and indeed on businesses in so far as we can” without further compounding the inflation crisis.
Albeit, the economic context surrounding this budget is far more positive than the fiscal context surrounding either Budget 2021 or Budget 2022. The latest Exchequer figures from August show a surplus of €6.3 billion underpinned by strong growth in corporation tax, income tax and VAT receipts. Total tax revenue at the end of August amounted to €49.8 billion, a 26.3% increase upon the same time in 2021.
This additional fiscal capacity does augment the political pressure upon the government to deliver a substantial budget package to tackle the cost-of-living crisis, particularly given the income supports proffered by the government throughout the pandemic. Further compounding the pressure, is the expected announcement by the British government of up to £100 billion in additional spending to address the impact of rising energy costs upon households. Opposition political parties Sinn Féin and the Social Democrats have already sought to pressurise the government on this issue, and increase the scope of the cost-of-living measures within the budget.
However, Minister for Finance, Pascal Donohue, has stated that the enhanced revenue does not change the coalition’s spending plans. Furthermore, the Department of Finance is likely to push for a fraction of the surplus be purposed towards replenishment of the State’s “Rainy Day” fund which was severely depleted by the response to the Covid-19 pandemic.
Within this operating context, Taoiseach Micheál Martin stated that included within this budget will be “a once-off cost-of-living package that will be applicable to this calendar year and then the budget which will take us through to 2023.” The leaders of the three coalition parties have met this week to further discuss the composition of the budget package, with the budget being further discussed at cabinet. Agreement on the size and composition of the budget package remains outstanding, with budgetary relief measures such as a second annual energy credit and changes to the income tax regimen still to be confirmed.
The budgetary measures to be announced by the government cannot be taken in isolation as European institutions are in the process of launching political, technical and fiscal responses to the global inflation and energy crises. While the European Central Bank agreed to hike interest rates by a further 0.75% to continue its aggressive approach to addressing rising inflation across the euro area, President of the European Commission, Ursula von der Leyen, unveiled her five-pronged plan to address the rising tide of energy costs across the EU.