Burgeoning exchequer returns and consistently bleak opinion polls for the Government mean there is enormous political pressure on Minister for Finance Paschal Donohoe and Minister for Public Expenditure Michael McGrath to placate a pandemic-weary public that has emerged from one crisis only to be faced with another this winter.
Soaring energy bills and rising inflation have by now left the Covid-19 crisis eating dust in terms of where the public’s concerns lie, and the Coalition has taken note. So, with less than a week to go until the budget, what exactly is in store?
Just last week, Tánaiste Leo Varadkar said the main objective “is going to be putting more money in people’s pockets and reducing the bills that people have to pay”.
“During the pandemic, the Government intervened to save countless jobs and businesses,” he said. “For many businesses, the energy inflation crisis is comparable. It requires a response of sufficient scale, and that will happen.”
So, alongside the agreed €6.7 billion budget package, the Government is set to introduce a stand-alone once-off set of measures to help with the cost of living which could top €3 billion.
The hot-button issue of the day is energy. While there has been talk in some quarters of capping bills, it does not appear to be the favoured approach on Merrion Street, with the Government instead preferring more energy credits — as many as three — with sums in excess of €200 mooted.
Varadkar is also understood to be working on how similar supports might be extended to businesses without engaging in a free-for-all for companies that don’t need the State’s help.
A flat-rate energy credit may not be suitable for businesses as the range of energy bills is much greater than for homes, and the Government wants to find ways to target the supports at the businesses that need them most.
Low-cost loans, large grants for energy-intensive exporters and manufacturers, and the possibility of either flat payments or a way of providing a discount on the bills for small and medium businesses are all being explored.
Businesses in the tourism and hospitality industry were among the hardest hit by the pandemic, and while Minister for Culture Catherine Martin has not been drawn on whether the temporary 9 per cent VAT rate for the sector will be retained, it would not be a surprise if it were to be decreed next week.
On taxes, Varadkar’s brainstorm of a new 30 per cent rate has been largely shot down, and relief is more likely to come in the form of a widening of the tax bands, extending the rate at which people start paying the higher income tax rate. There could also be tweaks to Universal Social Charge.
Increasing the 40 per cent tax band by €2,500 would mean people earning as much a €39,300 would not pay the higher tax rate.
Budget 2022: What to expect
Emma Arlow, a director in Deloitte’s tax team, has said full indexation of rate bands and credits to either 3 per cent or 4 per cent could result in a surplus of between €516 to 695 per year for single-income households with children.
Increases in tax credits and some other specific measures aimed at lower earners have also been suggested. There are likely to be special measures such as new tax reliefs for both landlords and renters in the latest gambit to ease the housing crisis.
Donohoe could also increase the tax-free bonus amount an employer can give an employee through the voucher scheme from €500 to €1,000 annually.
Ministers have also signalled reductions in the cost of childcare and school and college costs.
A special “double month” for child benefit — meaning parents would receive €280 per child rather than the normal €140 — is one option on the table. A wider Christmas bonus-style double payment week for general welfare recipients had also been speculated about in addition to the normal end of year one.
There have already been two extra fuel allowance payments this year — €125 in March and €100 in May — and another one is expected, together with other possible tweaks to this scheme and other ones that target “fuel poor” households.
The Government is also likely to extend excise cuts announced in March on petrol and diesel — due to run out in mid-October — and extend the reduction in the VAT rate on electricity, due to run out at the end of October.
Other supports, such as lower public transport fares, introduced in May until the end of this year, may well be extended.
The basic welfare measures delivered €5 a week extra in last year’s budget and this could rise to €12 to €15 this year — with more for many households through specific measures such as the fuel allowance.
School funding
Schools also look set to receive a significant increase in funding as school managers call for a dramatic increase in capitation payments amid concern that parents’ voluntary contributions will be needed to keep schools warm and lit over the coming months.
Department of Education sources have said schools “will not be found wanting” and “appropriate levels” of additional funding will be secured.
Primary school management bodies, representing about 3,300 schools, have jointly called for an immediate increase in the basic pupil capitation rate by 50 per cent, along with 10 per cent for the ancillary services grant.
At second level, the Joint Managerial Body, which represents more than 400 voluntary secondary schools, also urged the immediate index-linking of all capitation grants to allow schools to pay their bills.
A cut of up to €1,000 in the student contribution charge is among a range of options on the table as the Government seeks to reduce the cost of going to college.
The options are contained in a research paper prepared for the Government and also include increasing student grants by up to 25 per cent and widening eligibility to financial support for thousands of additional students.
There could also be a new tax credit for people renting their home, while landlords may see the amount of tax they pay on rental income reduced.
