Today’s budget is the last of five from this government, and the precursor to a general election that may follow immediately. In any event it sets out the country’s financial plan for 2025 and is the basis for an election that must come within months. Every budget is a political manifesto, and this one especially so. Its formulation has seen a contest of ideas and a battle for resources within government. More widely it marks the fault lines between the Government and opposition, especially Sinn Féin.
The main opposition party published its alternative budget last week. It would prioritise spending on housing, and over five years abolish USC on salaries up to €45,000, Property Tax, Carbon Tax and television licences. It would also reduce tax subsidies on pensions and extend and increase the bank levy among other tax raising measures. This is a scene setter for the electoral contest that is to come.
The Government set out its stall in its Summer Economic Statement in July. It aims to address infrastructural deficits, especially housing. It wants to provide for more health spending. Mindful that price levels have increased by about 20% since 2022 and an additional 500,000 people are at work since before the pandemic, with a population larger than previously assumed, it wants to provide for additional public services across the board.
To do that it proposes a total package on budget day of €8.3 billion above what was provided for in 2024. That will comprise a tax package of €1.4 billion, and additional expenditure of €6.9 billion. If additional taxes are raised, more can be spent. To do what is planned for requires expenditure growth of 6.9%, significantly above the 5% ceiling the government set for itself but has consistently exceeded. Sinn Féin similarly rejects such limits and plans to spend €12.4 billion, 50% per cent more than the Government. That won’t matter on Budget Day, but it is the contest of ideas which will follow it in an election campaign.
A figure that isn’t included is the €13 billion the state will receive from Apple after the European Union Court of Justice. The government says it won’t spend that money for current programmes and will announce its plans shortly. In circumstances where there are mounting pressures to spend, restraint is increasingly challenged.
Ireland overall, is in a good place economically. Disinflation has been faster than expected, and we have virtually full employment. The challenge is an infrastructure deficit, especially housing, and the electricity grid. Corporation Tax is notably buoyant accounting for 27% of all revenue. And that is the amber light. €1 in every €7 of the State’s total tax revenue comes from 10 firms.
The challenge is to strengthen social cohesion by building homes and developing services. Spending must be managed so as not to overheat an economy performing at close to capacity. Competitiveness generally must be promoted by investment in infrastructure. Balancing these objectives is the challenge facing our new minister for Finance Jack Chambers on his first budget, the last before an election.
