With evident objectives, the Budget for 2025 primarily aims to secure the re-election for the Coalition. The past week has seen the estimated cash distribution to households by this year-end rise to approximately £2 billion, predominantly via two universal disbursements, namely energy credits and child benefits – benefitting both affluent and needy households equally.
Last week, at a press meeting, budget ministers, Jack Chambers and Paschal Donohoe, declared that the decrease in inflation would not necessitate a scale of one-off gifts comparable to the previous year’s budget. However, just four days later, the situation turns out to be very similar to the previous year as the one-off gifts exceed £2.2 billion when inclusive of business aids, marginally beneath the 2024 Budget.
Key points of Budget 2025 include: a 6% stamp duty on properties exceeding £1.5 million in value; a £1 raise on cigarette packets; enhancing rent tax credit to £1,000; elevated social welfare bonuses and hiking minimum wage along with a new vaping tax. Also, the budget echoes a ‘payback’ reminiscence of the Celtic Tiger era due to being in the pre-election period.
The release of the pre-budget numbers last Saturday projecting huge surplus funds, triggered additional demands from expenditure ministers and party chiefs.
Leaders of the Coalition, according to the idiom, can withstand anything but temptation, and no traces of cautious tactics are found even among the Opposition ranks. Considering the sudden dip in inflation, this expenditure spree of one-off cash utilisation is hardly a wise public money spending. Undeniably, while the prices continue to stay steep and several low wage earners still experience budget constraints, it’s agreed unanimously that the biannual welfare payments during the festive season should continue.
Better ways could have been adopted to focus resources on these groups using the welfare system. Having ample time for decision-making post financial crisis, the Coalition has opted to take a massive leap by disbursing much of the funds through the two extensive payments, including energy credits and child benefits, which serve all income level households. Consequently, a considerable part of the advantage is bestowed upon those least in need.
A large number of households rely on one-time cash support to meet their needs, a solution that fails to adequately address ongoing financial issues. The Coalition’s approach has led to growing pressure on the succeeding government to continue these payments next year, as families have grown reliant on them, making a mockery of the term ‘one-time’. This extra cash is often spent by those who are financially stable, potentially driving up inflation or padding out sizeable savings accounts. Families, especially those with children who depend on child benefits, stand to gain significantly more than single individuals.
No comprehensive strategy underpins the cost-of-living package, rendering the Coalition’s long-term vision for the nation unclear. Many households would instead favour improved health and education services over short-lived financial uplifts. However, enhancing these services requires time and there is an impending visit to the polls.
Recently, budget departments and spending ministers have adopted a preference for one-time solutions to avoid ongoing expenditure commitments. As the cost-of-living crisis lessens, it was anticipated that these strategies would be phased out. Contrarily, they are being implemented into household budgets and political aspirations.
Few would dispute that the additional Christmas welfare payment annually should be preserved. Yet, are households to anticipate repeated child benefit weeks and energy credits each year? This time, such financial generosity is attainable due to the robust state of the public finances. The projected budget measures for the coming year, including persistent tax and welfare amendments, have remained largely aligned with estimates released in the summer, albeit the tax package has slightly increased.
A lot of this alignment is necessary for adjusting tax and welfare systems to account for inflation. The Irish Fiscal Advisory Council (Ifac) contends that tighter control should be maintained over permanent spending by the government to limit the risk of fuelling inflation.
The government responds by stating that rising population and state needs necessitate increased spending in essential domains such as housing, water and energy, as well as on public services. Striking the right equilibrium in an economy operating at full capacity is challenging, but the need for investment is evident.
The Minister for Finance has announced increased allocation of funds to address primary deficiencies in housing, water, and energy sectors during his speech, which was aimed at foreign investors and the public at large. These funds are primarily sourced from Apple and the public sale of State’s AIB shares. To make these monetary commitments credible, an urgent and enhanced delivery is of utmost importance.
In future, there may be less room to manoeuvre on budgetary spending and decisions may become harder. However, some flexibility still exists within public finances. The government persists in funnelling money into two reserves to underpin future expenditure and is aiming for a considerable budget surplus in the forthcoming year.
While much of the tax revenue is reliant on a handful of large corporations, these measures are a positive move, setting up added resilience within the public finances. Nevertheless, if corporate taxation profits are taken into account from the pool, next year the public finances are expected to be in deficit, a stark contrast to a predicted headline surplus of nearly €10 billion by the Department of Finance.
Despite this department repeating this claim over the past years with corporate tax continuing on an upward trend, there might be a year when this pattern comes to an end.
Moreover, the budget appears to be redirected towards indispensable future investments, yet has a sense of aimlessness. Reminiscent of the Celtic Tiger ‘payback time’ method, the payouts to households seem particularly disparate. This strategy is feasible for the current year’s Coalition, provided the budget stays in surplus. However, the suspicion is that sooner or later, budget days could see lesser cash availability, making the process of decision-making significantly tougher.