Drawing conclusions about the state of the exchequer finances for this year would be premature at this stage, and its impact on the October budget is also uncertain. However, discernible patterns emerged from the April exchequer figures released last Friday. Notably, expenses continue to surge and exceed the budget, making it challenging to restore balance. Conversely, tax revenues demonstrate decent strength; income tax is currently 7% higher than the previous year and the finance department suggests the initial slump in corporation tax corresponds to “timing factors” related to payments.
The current probability points to the government meeting or nearly fulfilling its public finance objectives for 2024. This implies that budget architects Michael McGrath and Paschal Donohoe would approach the budget planning with considerable flexibility. A positive restraint is the decision to channel cash into future-saving funds. Still, the likelihood exists that pressure will mount on them to relax control on tax deductions and expenditure schemes in view of the forthcoming general election.
It’s important to recognise that an appreciable increase in spending is already worked into the 2025 projections. Adjustments will also be made to welfare to factor in inflation. Moreover, it’s fitting to recalibrate tax bands and credits to ensure that as salaries increase, taxation proportion does not follow suit.
But transcending these boundaries would be ill-advised, especially in an economy operating at or close to its full potential in several sectors. Regardless of the developments in corporate tax this year, committing excessive funds next year would disregard the associated risks, which are well documented.
Specifically, there is no justification to imitate the universal one-off measures such as costly energy credits, a recurring feature in recent times. It’s imperative to safeguard less affluent households, but a more efficient tactic would be permanent alterations to welfare schemes. Given the dramatic decrease in wholesale energy prices and assuming this persists, consumer costs should continue to drop. While they may not return to pre-spike levels, the government’s attempts to compensate for escalating bills for every household perpetually would be unwise.
To secure votes for the upcoming election, the promise of a generous budget has become a tool for political manoeuvring. Both Fine Gael and Fianna Fáil have engaged in this battle of pledges, some of which may be feasible, and some possibly not. However, the credibility of the Coalition’s fiscal management will be questioned if they attempt to woo voters with enticing budget proposals. A strong tax inflow and prudent management have so far safeguarded the budget surplus, providing alternatives for future prospects. This is a status that should be vigilantly preserved.