Earlier this year more than 500,000 adults in Irish society were relying on the pandemic unemployment payment with hundreds of thousands more private workers getting their wages topped up by the employment wage subsidy scheme.
The State has shipped an extraordinary €17.5 billion since March 2020 in supporting the multiple schemes that have kept the economy and society afloat during the pandemic. Next year, the national debt will be a whopping €240 billion.
Against that miserable background, the assumption might be of a tentative Budget. But it is anything but. The recurrent mood throughout Budget 2022 is one of optimism and upbeat optimism at that. There is plenty of new spending, plenty of giveaways and even – that rarest of phenomena over the past decade – tax breaks for low and middle earners. It's not quite the "when I have it, I spend it" budgets of 'Champagne' Charlie McCreevy 20 years ago, but in the context of the past decade, it's certainly a spending budget.
Both Ministers [...] have provided a contingency fund for Covid-19 to the tune of €4 billion, reminding us that while the signs are good at the moment, we are not out the gap just yet
The optimism is grounded on a remarkable economic rebound in recent months as society has reopened. Modified domestic demand grew by 8.5 per cent in the second quarter, a higher rate than immediately before the pandemic. Unemployment fell sharply and is now back in single digits for the first time in more than 18 months. The predicted deficit of €34.5 billion for 2021 and 2022 combined has been slashed to €21.5 billion, a reduction of 40 per cent.
Sure, there are risks from inflation (but Minister for Finance Paschal Donohoe expressed confidence that the inflation increase is a short-term post-Covid phenomenon) and the sheer scale of our national debt (€50,000 for every man, woman and child).
Both Ministers, Donohoe and Minister for Public Expenditure and Reform Michael McGrath, pointed out in their speeches that they have still provided a contingency fund for Covid-19 to the tune of €4 billion, reminding us that while the signs are good at the moment, we are not out the gap just yet.
So in total there is €4.7 billion in “new spending” and it is spread far and wide across departments and the economy. Most of it is relatively modest but is designed to give some sense of buoyancy and suggest “recovery”.
In a bid to counter inflation, there is a €520 million income tax package. The standard rate band will increase by €1,500 and all of the tax credits will increase by €50.
For middle-income earners that will be worth more than €400 a year.
In terms of revenue earning changes, there are a number of new or raised taxes with a climate change focus. There will be a slight but tiered increase in vehicle registration tax, with higher emitting cars paying comparatively more. The €7.50 per tonne increase in carbon tax will also result in increased prices at filling stations. Neither of those increases will be popular with motorists who have seen big increases in fuel prices already this year.
It’s interesting that both Ministers have included incentives to reboot the aviation industry, which was one of the hardest hit during the lockdown. Donohoe has included a new provision where cabin crew of Irish airlines who are non-resident in Ireland will not pay income tax here. Likewise, McGrath is providing €90 million to the aviation industry for capital and operational schemes, which includes the funding of the Public Service Obligation air services.
In health, the expenditure figure for 2022 will exceed €20 billion for the first time. That includes a commitment to add 7,000 new posts across the health sector
Unsurprisingly, Donohoe devoted some time in his speech to the issue of corporation tax and the ceding, after 23 years, of the prized 12.5 per cent rate. He is insistent that Ireland will not budge from the lower scale.
“When it comes into effect, Ireland will apply the new minimum effective rate of 15 per cent. This will be less than many of our key competitors.”
On the spending side, some of the spending commitments are now reaching mind-boggling proportions. In all some €87.6 billion will be allotted to public expenditure in 2022. It is entirely predictable that much of the new spending will be focused at the three key areas of challenge: Covid recovery, health and housing.
On the latter, the Government has now reached what they describe in American football as the “moving quarter”. It has to show results in terms of its policies as recovery from Covid-19, making it a more wan excuse for lack of delivery.
McGrath has allocated a record €6 billion in exchequer funding next year for housing, with the aim of building 13,000 social and affordable homes next year. In addition, a total of €20 billion has been ring-fenced for housing over the next five years, to meet the expected target of 33,000 new housing units.
In another move that tends to be popular with voters, McGrath announced an additional 800 recruits to the Garda in 2022
Equally in health, the expenditure figure for 2022 will exceed €20 billion for the first time. That includes a commitment to add 7,000 new posts across the health sector as well as some worthy innovations such as access to free contraception to women aged 17-25.
Another big ticket item is water. Without water charges, the State is left to stump up the capital to ensure the sustainability of water. Next year it is €1.6 billion and €6 billion over the next four years. As the heatwave in July and the water shortage notices of this summer have reminded us, as have more recent examples of contamination, even that level of investment may not be sufficient.
One of the biggest individual components of the plan to reduce carbon emissions by 50 per cent will be to ensure that 500,000 homes in the State are retrofitted. In that context, the provision of €202 million for energy efficiency in homes seems modest indeed, which will support only about 22,000 home upgrades. But McGrath promised that the 2022 funding was “merely the start of a ramp up”.
In probably the most leaked budget of all time (and that says something, given how extensive the leaks were in recent years), there are hardly any items that have not been made public. One that emerged very late was the idea of a youth travel card, a 50 per cent reduction in public transport fares for everybody aged 19-23.
Social Protection also got a generous proportion of the extra funds, with increases of €5 in welfare, pensions and other allowance in a package worth €588 million. There are also increases in fuel allowance to counter carbon taxes, and fuel price increases. In another well-trailed announcement, the full 100 per cent Christmas bonus will also be paid this year.
In another move that tends to be popular with voters, McGrath announced an additional 800 recruits to the Garda in 2022.
The tone of both ministers’ final words were similar. McGrath said he looked forward to a time “when the historians will conclude that we rise to the challenge, we learned the lessons and we emerged in a better place”.
For its part Sinn Féin did not take any time to dismiss the document, with Pearse Doherty saying it was 'out of touch, out of idea, out of time'
Donohoe said: “I am an optimist by nature and believe that as we move out from under the dark cloud of the pandemic, there are truly exciting times ahead for the country and its people.”
Only time will tell if that strategy will work.
For its part Sinn Féin did not take any time to dismiss the document, with Pearse Doherty saying it was “out of touch, out of idea, out of time. Never has so much been spent to achieve so little,” in a speech that was widely dismissive of policy and strategy.
As the main opposition party, Sinn Féin in its approach to the budget has placed clear, blue water between itself and the Government. It has shifted sharply to the left, calling for €2 billion in extra taxes, mainly focused on the better-off in society. It also opposes the imposition of carbon tax increases, property tax, and Doherty promised to fight “tooth and nail” to oppose any increase in the pension age – his party has promised to bring it back to 65. In addition, he again promised that his party could deliver an enormous number of social and affordable homes in 2022, some 20,000 in all.
At least, what became clear as the debate ground on in the afternoon, is that the battle lines have been drawn.
