Big spending package advanced despite warnings on numbers becoming tighter

Irish Times

3 days ago

The summer economic statement is normally the Government's key piece of communication before the budget. But this year's comes with a serious health warning.
The numbers may be revised, we are told, if the economy is hit by further tariffs. And the tariffs in place already and the Government's budget plans mean that the surplus next year will be 'considerably smaller' than the €6.3 billion anticipated in the forecasts published during the spring.
The numbers, in other words, are getting tighter. In this context, it is notable that the Minister for Finance
Paschal Donohoe
and Minister for Public Expenditure
Jack Chambers
, put forward a planned budget package of a still relatively generous €9.4 billion, including a tax package of €1.5 billion.
Spending growth is pencilled in at 7.3 per cent, with a 6.4 per cent rise in day-to-day spending. This may be a reduction from the average of 9.4 per cent-plus seen on average since 2019, but it remains well in advance of inflation.
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Current spending is due to rise by 6.4 per cent next year. In recent years there have been regular overruns and this will be the case again in 2025.
Importantly, the Ministers warned that the figures will have to be revised if the tariff situation worsens, as it may well do. So we will have to wait and see what level of tax revenue growth is anticipated next year and what budget surplus the Department of Finance anticipates.
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This is what will determine whether the budget numbers need to be adjusted – and if so, by how much. In recent years, the basic package has also been extended significantly on budget day by a cost-of-living package, including once-off measures. We are told this will not feature this year, probably. Battles may still lie ahead here.
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If there is a need to adjust the figures, we are told that protecting capital investment and the large €102 billion five-year programme outlined in the revised
National Development Plan
will be the priority. Large cuts to State investment during the austerity years after the financial crash have cost the Republic dear. That said, if there is a need to revise the figures, there will surely be tensions.
As things stand, some €850 million of the €1.5 billion tax package will be eaten up by the promised cut in the hospitality VAT rate. This will leave small pickings for income tax cuts, unless revenue is raised elsewhere. Applying the VAT cut to just food-based firms, while administratively difficult, would save some of the cash. But political difficulties loom here.
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The big questions will, however, be about expenditure. Restoring control over day-to-day spending will be a big challenge. And if the budget numbers tighten, then the State will face the choice of borrowing to finance its increased investment plans. In the middle of all this is the commitment to billions into two funds each year, to help pay future bills.
We still have to see how the Department of Finance sees all this fitting together. The summer economic statement, bar its indications of the budget day package, did not take us much further, except for a warning that if a trade war erupts, then all bets are off.