Political Correspondent
Almost €3 billion is expected to be set aside as contingency funding for income and business supports in Budget 2022, given continued uncertainty over the Covid-19 pandemic.
The Summer Economic Statement (SES), agreed by Cabinet on Wednesday evening, also set out how the Government expects to have €1.5 million for separate new measures in October’s Budget
In all, the SES, published by Minister for Finance Paschal Donohoe and Minister for Public Expenditure Michael McGrath, outlined a core package for Budget 2022 of €4.7 billion.
A Government statement said that €2.8 billion is to be set aside to provide for income, business and other supports, should they be needed, and this reflects the “continued uncertainty around the public health situation”.
Deficit
The SES predicted a €20.3 billion deficit this year but also an 8.75 per cent growth in gross domestic product (GDP).
In their foreword to the statement, the two Ministers said that while they believe the Government response to the pandemic has been the correct one, “the current pressures on the public finances are not sustainable, and levels of public spending are well in excess of what can be supported by the domestic tax base”.
“We cannot keep financing large deficits,” they said.
With a public debt-income ratio among the highest in the developed world, they added, “borrowing beyond the short-term increases our vulnerability and depresses the living standards of future generations.
“Against this background, and as the worst of the pandemic fades, it will be necessary to phase out the temporary fiscal supports.
“To avoid a ‘cliff edge’, the Government has extended the Employee Wage Subsidy Scheme, the Covid Restrictions Support Scheme and the Pandemic Unemployment Payment.
“On this basis,” they said, “a deficit of €20.3 billion – 9.4 per cent of GNI* – is in prospect for this year.”
Separately, they said that exports from a small number of mainly foreign-owned sectors – in pharmaceutical and information and communications technology, as well as in firms who outsource production by way of “contract manufacturing” – recorded very strong growth in the first half of this year.
“On this basis, an upward revision to the GDP projection for this year – now projected at 8.75 per cent – has been incorporated, although this has limited downstream effects to the rest of the economy.”
Sustainable position
Division within Government on economic policy delayed the publication of the statement. It was due to be approved by Government on Tuesday but was not brought forward by Mr Donohoe because he had not yet reached agreement on its contents with Taoiseach Micheál Martin, Green Party leader Eamon Ryan and Mr McGrath.
Fianna Fáil was pressing for a substantial increase in capital funding for housing. Mr Donohoe wanted to ensure there was a commitment to deficit reduction.
After the SES was published, Mr Donohoe said it sets out “a credible medium-term strategy for returning the public finances to a sustainable position, while maintaining temporary supports to households and businesses.”
He said: “By 2023, we will borrow only for capital investment, which is being ramped up to provide for, among other things, significant additions to the housing stock.”
Mr McGrath said: “Under the SES, core expenditure will grow by just over 5 per cent on average over the period to 2025 – an amount which is prudent, sustainable and consistent with our plan to reduce the deficit in an orderly manner.”
He said that within that framework the Government has “set out our intention to make a massive investment in the future wellbeing of our country and the lives of our citizens, through further enhancements to the public capital programme.
“Over the next four years, we will spend almost €50 billion on vital infrastructure.
“This sustained and ambitious investment programme will ensure that we tackle the housing crisis head on, building thousands of social homes and take immediate action to improve affordability for first-time buyers and renters.”
Tax relief
Tánaiste Leo Varadkar signaled that Fine Gael will seek to include tax relief for people subject to the highest rate of income tax as well as a social welfare package to benefit pensioners and others in Budget 2022.
At a private Fine Gael meeting he updated TDs and Senators on the Summer Economic Statement.
He said the Government wants to move into a current account surplus in 2023 where we are only borrowing for capital expenditure and not day to day spending.
Mr Varadkar said the cost of living is rising and pensioners, carers, widowers, disabled and others have to be assisted with a welfare package.
He also said people had to be protected from paying more of their salary at the highest rate of tax. Mr Varadkar spoke of a providing what he called a “tax shield”.
Fine Gael have previously promised to raise the income threshold at which people pay the highest rate of tax on their earnings though it’s understood this is just one option under consideration.
