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Irish Examiner
25 minutes ago
- Irish Examiner
Jim Power: Budget countdown begins with big promises
The publication of the summer economic statement has set the budgetary process in motion, and the destination will be reached in early October. The two relevant ministers have outlined a budget package of €9.4bn, with a net tax package of €1.5bn, and an expenditure package of €7.9bn. This expenditure package will be comprised of current expenditure increases of €5.9bn or almost 75% of the total; and capital spending of €2bn or just over 25% of the total. Proposed Vat cut On the tax side, the Government has given a commitment to reduce the Vat rate for part of the hospitality sector — the food element — to 9% and this would cost around €580m in foregone taxes. If this is delivered and applies from January 1 next, it means that effectively less than €1bn would be available for personal tax changes. To put this in context, it is estimated that a 1% indexation of the employee tax credit would cost around €230m in a full year, so to index for projected inflation in 2026 would cost somewhere in the region of €460m; or a 1% decrease in the 40% tax rate would cost around €540m. If the government delivers the Vat cut from the beginning of 2026, which it has committed to, the tax package will be small. So not surprisingly, there are suggestions that the cut might be delayed until July, thereby significantly reducing the cost in 2026. If this transpires, the hospitality sector would have every right to be aggrieved. Restaurants and food businesses are the most crucial element of our tourism product, and many businesses are struggling to stay afloat. Inflation Data released by the CSO last week show that in 2024, Irish food prices are the third highest in the EU-27 and are 12% above the EU average. In the year to May, agricultural output prices increased by 20.7%, with cattle prices up by 48%. These prices obviously feed into restaurant input costs, but the pressures are compounded by labour costs, insurance, water charges, commercial rates etc. I am a supporter of the reduced Vat rate, and I think it is now more appropriate to provide some limited support to a key employer of people all over the country, and a vital part of the tourism offering, rather than to pump money through excessive expenditure into an economy that is still doing quite well. Does the Irish economic cycle need a continuation of out-of-control current expenditure now? I think not. Even if the Vat cut is pushed out, the extent of the easing of the personal tax burden will be miniscule. We should have learned from the past We should have learned our lessons from the pro-cyclical policies of the past. The summer economic statement projects planned expenditure of €108.7bn this year, which is €3.3bn higher than planned in Budget 2025, and it is likely to turn out even higher than this latest projection. Not surprisingly, the Irish Fiscal Advisory Council is not happy and has justifiably accused the Government of 'poor planning and budgeting.' Obviously, the ability of the two ministers to deliver the proposed budgetary package, and indeed to deliver the ambitious, but detail lacking, revised National Development Plan, will be heavily contingent on the future performance of the economy, and especially the actions of Donald Trump. Downward creep in projections There is not a lot of detail in relation to economic assumptions in the summer economic statement, but it is interesting to note that for 2025 the Department of Finance is projecting growth of 2% in modified domestic demand (MDD), down from 2.5% in April, and 2.9% in Budget 2025 last October. For 2026, MDD is projected to grow by 1.8%, down from 2.8% in April, and 3% in Budget 2025. There is downward creep occurring in Ireland's economic projections, which seems logical in the context of Trump-induced uncertainty. In relation to the National Development Plan, it is quite amazing that we must await detail on the projected spend until close to budget time. What in the name of God has been happening since January? The aspirations outlined in the revised plan — such as energy, water, housing, transport infrastructure, and climate change — are difficult to argue with, but delivery on time and on budget will be essential. One hopes there will be greater control, transparency and accountability in relation to National Development Plan delivery than we have seen with major infrastructure projects such as the children's hospital and the infamous bicycle shed.
Extra.ie
3 hours ago
- Extra.ie
Exclusive: Budget 2026 to cut several key payments in austerity move
The country is facing its first austerity budget in a decade, top Coalition sources told this weekend. And Fine Gael's much-trumpeted 9% VAT rate cut for the hospitality sector will not be decided until Budget Day and may not happen at all, given the worsening economic situation, a Government minister told Extra. The slashing of the Universal Energy Credit, double child and social welfare bonuses at Christmas and reinstating university tuition fees to €3,000 are all being considered. Tánaiste Simon Harris and Taoiseach Micheál Martin speaking at a press conference for the launch of the Government's Summer Economic Statement and the National Development Plan for the next five years. Pic: Niall Carson/PA Wire It sets the scene for a destabilising summer of discontent over the tighter spending rules being imposed by Public Expenditure Minister Jack Chambers. Senior Government sources have publicly denied claims that the next budget will be an austerity budget but, privately, sources at the top of the Coalition say otherwise. Despite this week's announcement of the biggest capital spending programme in Irish history, ordinary families will feel the squeeze due to the elimination of one-off payments which for some are worth as much as €1,000. After years of record spending increases, one minister told Extra: 'The plan is simple. Wait Trump out with a couple of austerity budgets and return to power via a series of generous budgets in the latter half of our term. 'A deal [on tariffs between the EU and the US] is still possible but the overall scenario is frightening. It is all very uncertain. The spat between Trump and Macron [over France recognising the Palestinian state] could add 5% to tariffs.' A Fine Gael minister said last night: 'Let Fianna Fáil and Micheál take the hit for cuts in the first three years and then Simon will take the credit for extra spending in the last two years. 'When we don't have it (money) at the start of a new government we won't spend it. When we have money just before the next election, we'll spend it.' Tensions about the cuts came to the fore this week after a ferocious row broke out between Fianna Fáil and Fine Gael over the issue of VAT reductions. Commenting on the public exchanges between the Coalition partners, one source said: 'Willie O'Dea is already on Morning Ireland causing discontent and it is only July.' Cuts in the first three years and then Simon will take the credit for extra spending in the last two years. When we don't have it (money) at the start of a new government we won't spend it. When we have money just before the next election, we'll spend it.' Public Expenditure Minister Jack Chambers. Pic: Fran Veale Tensions about the cuts came to the fore this week after a ferocious row broke out between Fianna Fáil and Fine Gael over the issue of VAT reductions. Commenting on the public exchanges between the Coalition partners, one source said: 'Willie O'Dea is already on Morning Ireland causing discontent and it is only July.' A senior Coalition source said last night the impending cuts are 'very necessary. There's concern over the long-term consequences of the 37% growth in spending since 2021.' 'The blunt truth is, there has been a lot of waste. We have to spend on political necessities. No more luxuries. There is a need to bring discipline back into spending. Covid led to necessary loosening of the reins, but we need to restore traditional controls. We need to do a few big things well. There is a brave new world out there. We need to ensure spending is efficient,' they said. Another minister noted: 'The Government had no other option. Spending was getting out of control. Every department was starting to resemble the Department of Health. It had to stop.' Another minister last night tried to minimise the scale of any proposed cuts. 'This is not austerity, it's normality. We have to walk our way back from a system of economics that was first driven by Coronavirus and then the first large-scale land war between two states since 1945,' they said, referring to Russia's invasion of Ukraine. Another Fine Gael minister noted: 'When it comes to cutting, do you want to be unpopular now or would you prefer to be unpopular in five years' time?' One Fianna Fáil minister warned their Coalition partners: 'Fianna Fáil has no intention of taking the hit for one-off cuts. Fine Gael would be wise to not be too clever. We will not be austerity patsies. The proposed economic challenges we face require a Government that works together or both parties will sink.' Finance Minister Paschal Donohoe speaks to the media outside Leinster House. Pic: Niall Carson/PA Wire/PA Images In an indication of the uncertain international landscape, understands an Oireachtas Committee report into the Occupied Territories Bill will recommend the banning of both the importation of goods and services from territories illegally occupied by Israel in Palestine. The judgment, to be delivered next week, is likely to provoke fury in both the United States and Israel and leaves the Coalition facing a very difficult diplomatic position. Both Fianna Fáil and Fine Gael have said they are committed to the passage of the Bill but, up to recently, the Coalition's preference was to confine any ban on imports from Israeli settlements to goods. Sinn Féin and the soft left, by contrast, have consistently called for a ban on both. A Bill, forwarded to the Committee for pre-legislative scrutiny in June confining the ban to goods, was called an act of 'diplomatic intoxication' by the US ambassador to Israel Mike Huckabee, who said Ireland should 'sober up' and apologise to the Israeli Ministry of Foreign Affairs. The Committee now wants the Coalition to go further and ban both goods and services. It is believed such a ban was backed by all members, including Fianna Fáil and Fine Gael. The Committee is expected to note it had to proceed without the advice of the Attorney General on the issue of services. It will add to the growing concerns that triggered a major pre-summer Economic Statement clampdown by the Department of Public Expenditure and Reform.
Irish Examiner
4 hours ago
- Irish Examiner
Trump and von der Leyen set for crunch meeting on EU-US trade talks
US president Donald Trump and European Commission president Ursula von der Leyen are to hold a high-level meeting in Scotland on Sunday as the two sides attempt to finalise an EU-US trade deal. Ms von der Leyen is expected to meet with Mr Trump at around 4.30pm. Ahead of the crunch meeting, Tánaiste Simon Harris has been engaging with EU trade commissioner Maros Sefcovic who is also due to attend the talks. The Government has described the meeting as a 'critical moment' for the future trading relationship between EU and US. Government officials have said there is a cautious optimism about the prospects of a deal, but it is likely to be only a framework agreement with further line-by-line negotiations required in the months ahead. 'Over recent weeks, the EU has been engaged in intensive negotiations with the US to try and bring about an outcome that avoids unnecessary trade barriers. Ireland has strongly supported this calm and measured response from the EU,' a spokesperson for Mr Harris said. 'The Tánaiste has been heavily engaged with colleagues across member states, as well as with Commissioner Šefčovič. He also held discussions with US Trade Representative Jamieson Greer last month and continues to maintain contact with the US administration.' The spokesperson confirmed Mr Harris would be in contact with the members of the Government's trade forum once an agreement is reached. Mr Trump is currently on a four-day private visit to Scotland, with the president staying in his golf resort in Turnberry. On arrival, Mr Trump said he believed the chances of a deal with the EU were 'a good 50-50', while praising Ms von der Leyen as a 'highly respected woman'. It is believed the deal will outline a 15% baseline tariff for exports into the US, but a higher rate of 50% for European steel will remain in place. There is some expectation a deal may be reached for a 15% tariff on pharmaceuticals. This would be significantly lower than the 200% previously threatened by Mr Trump, which would have been damaging for Ireland due to the high number of US multinationals based here.
