It’s plainly evident that the re-election of the Coalition is a focal point for Budget 2025, with budget considerations largely reflecting this goal. The last week saw the proposed living-cost aids for households and corporations escalate to near €2 billion. Remarkably, almost half of this figure will be dedicated to two universal payments – energy credits and child benefits–that equally distribute cash to both the affluent and disadvantaged.
Despite declarations from Ministers Jack Chambers and Paschal Donohoe at a press conference last Friday that the forthcoming one-off package wouldn’t be as substantial as the preceding budget due to subsiding inflation, the narrative changed. By Tuesday, the overall one-time disbursements surpassed the €1.5 billion hinted at in the past few weeks, falling slightly short of the previous year’s €2.3 billion. This shrinkage seems negligible given the drastic inflation decline meanwhile. Consider the additional short-term tax alterations, and the entire current living-cost package amounts to approximately €2.2 billion.
Publication of the pre-budget statistics the preceding Saturday, which projected significant surplus, seemed to spur spending Ministers and party leaders to advocate for further expenditure. As the proverb goes, the Coalition leaders have shown that they can withstand everything except temptation – with the Opposition bench not showing any signs of adopting a more cautious stance.
This overindulgence of one-time grants is not an efficient deployment of public funds. That said, it cannot be denied that prices remain elevated, leaving less affluent earners in a financial pinch.
No one disputes the need to sustain the biannual welfare fund disbursed during the festive season. However, there are better strategies to devote funds to these demographics via the welfare system – a task that the Coalition has had ample time to strategize for since the crisis transpired. Regrettably, impressive proposals such as introducing a secondary tier of child benefits for less well-off households have not been pursued.
Rather than adopting a strategic approach, the Government has opted for lavish expenditures, distributing substantial amounts of funds via two modes – energy credits and child benefits – which cater to households across all income brackets. This means that a significant proportion of the aid ends up with those who aren’t in desperate need of it. Those households genuinely requiring assistance find themselves depending mostly on one-off payments. Short-term solutions, however, won’t rectify long-term issues.
Furthermore, the Coalition has set a precedent that will put the future administration into a predicament, compelling them to continue the payouts next year because households have grown accustomed to these benefits. Continual yearly renewal of the additional welfare payment during Christmas is unanimously agreed upon. The question that remains is – should households expect the same frequency in terms of child welfare payments and energy credits?
The Coalition’s cost-of-living package lacks a broader strategy or a clear indication of the future direction of the country. The affluent will probably spend the surplus money, potentially stimulating inflation in certain sectors, or add it to their already overflowing savings. This move may bring short-lived stimulation to a functionally efficient economy which doesn’t require it.
Rather than momentary financial augmentation, many households would undoubtedly appreciate enhanced health and education services. However, these improvements necessitate time, which is limited in the context of impending elections.
Such extravagance is feasible due to the favourable state of public finances, which have managed to weather the storms of both the pandemic and the rising cost-of-living crisis successfully. The principal budgetary measures for the upcoming year, specifically the enduring alterations to tax and welfare, have predominantly remained within the range suggested during the summer, albeit the tax package has slightly increased.
Most of these modifications are imperative to align the tax and welfare systems with inflation. The Irish Fiscal Advisory Council (Ifac) suggests that the Government should enforce stricter regulation of sustained expenditure to avert boosting inflation.
The Government contends that the increasing population and the state’s needs warrant escalated spending in sectors like housing, water, energy, and public services. Striking the appropriate equilibrium is taxing, especially in a fully functional economy, albeit the requirement for investment is evident.
A substantial additional amount of funding has been designated by the Minister for Finance in his address, signalling to international investors and the broader public about the effort to tackle predominant insufficiencies in housing, water, and energy sectors. This is possible due to the resources drawn from Apple and the released shares of the State’s AIB. Achieving credibility necessitates enhanced and quickened execution, overcoming common obstacles like cost management and planning. Although it’s not a concern for budget day, the Coalition has divvied up additional billions, yet a structured plan for expenditure and execution assurance is yet to be presented.
The amount of cash available for future budget days will lessen and decision-making will prove to be increasingly tough. The budget totals still allow for flexibility, with the government continually investing in two funds to sustain future expenditures and aiming for a substantial budget surplus in the ensuing year. This is a positive development and begins to introduce resilience into the nation’s finances.
However, it’s important to note that our reliance on a handful of large companies for most of the corporate tax and a significant part of the income tax base. The finance department anticipates that following the removal of the excess from the corporation tax intake – Apple’s contribution included – next year will witness a deficit in public finances, contrasting with this year’s near €10 billion surplus.
This argument has been in circulation for a while and corporate tax continues to escalate. It’s possible that the corporation tax bubble may burst one year or the spike in payments may cease. Either way, Ireland’s dependence on the health of its pharmaceutical and ICT sectors is evident, and Tuesday’s announcement of further job losses at Pfizer highlights how swiftly the situation can change.
While the budget does allocate significant funds towards crucial future investments, it lacks a clear focus. Household payments resemble a Celtic Tiger era “giveback” strategy. The Coalition might be able to balance the dual aims of fiscal responsibility and pre-election benevolence for another year. But it’s possible that the cash reserve for future budget days will reduce and decision making will become more stringent sooner rather than later.