The complete elimination of one-off payments and a sharp reduction in current spending growth are likely in this year’s budget, as payments that have benefited the average worker by about €1,000 each are pulled back, several people involved in the process have said.
These two elements, plus a significant boost to capital spending, are likely to form the basis of a restrained budget in the face of economic uncertainty.
Discussions between Minister for Finance Paschal Donohoe and Minister for Public Expenditure Jack Chambers and the Taoiseach and Tánaiste continued last night at Government Buildings. They also considered the State’s response to the threat of 30 per cent tariffs on EU exports to the United States.
Sources said that the elimination of the one-off payments of recent years – in the shape of energy credits and double welfare and child benefit payments – has been agreed by Government leaders, though they also say this will entail significant political difficulty for the Coalition. Moreover, it is likely to be challenged internally as the budget approaches.
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There is also wide agreement that the increases in current spending of 8 to 9 per cent in recent years will be reduced significantly, perhaps towards 5 per cent, though this will have implications for budgetary questions such as the increase in welfare rates.
The policy of spending restraint is likely to be central to the summer economic statement, which is due to be published next week. The statement is usually delivered at the start of July, but has been delayed by internal wrangles and uncertain global outlook, further evidenced by US president Donald Trump’s threat of tariffs over the weekend.
There is also certain to be a boost to capital spending on infrastructure announced next week when the revised National Development Plan is published. Mr Chambers has been working through lists of projects with line Ministers in recent weeks and the plan is expected to mean significant additional spending on housing, water and power infrastructure. However, some of the more extravagant requests from Ministers have been denied.
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Coalition sources say that the spending increases on infrastructure will come at the cost of restraint in current expenditure, which will not expand at anything like the rate of recent years.
The Government mood is said to have grown more pessimistic in recent months as threats to the economy and multinational sector grow. Officials have pointed to declining growth forecasts and sources involved in the process say that there is a settled view that the Republic’s response must be to set a more cautious and restrained budgetary policy.
However, there is also an awareness of the potential political cost of ending the cost-of-living payments while also holding down welfare increases and any tax adjustments.
The Coalition has been under pressure from the Opposition in the Dáil recently on cost-of-living increases which politicians in all parties say is still a big issue for the public. Inflation has come down from close to 10 per cent in the aftermath of the pandemic and Russian invasion of Ukraine to less than 2 per cent. .
Meanwhile, Mr Chambers will update the Cabinet on State spending for the first half of 2025 when it meets this morning.
The end-of-June expenditure memo shows current expenditure is up 6.5 per cent compared to the first six months of 2024. Capital expenditure is up 22.5 per cent.
Mr Chambers will confirm that capital investment will be stepped up in the revised National Development Plan next week.
