Current financial forecasts, provided by the Department of Finance as a part of their annual Stability Programme Update, are not as simple as they seem. The estimates concerning public finances come with their usual ambiguities, particularly around the sustainability of corporate taxation. This has led the Department to formulate separate forecasts, deducting what they believe is an unreliable portion of the revenue for the Exchequer in the long run. Depending on the specific figures one decides to concentrate on, the State’s finances can appear either in healthy surplus or deficit.
How do we interpret such a complexity? How it pans out will undoubtedly be influenced by politics and the upcoming budget. Pre-budget predictions suggest the surplus (as calculated by the EU) could be around €10 billion next year; this, even after accounting for funds allocated to the government’s two planned savings schemes. Regardless, the budget is expected to be substantially smaller than Covid-related and cost-of-living budgets of the recent years, but still having substantial leeway.
The government will have to make some choices. For instance, continuance of one-time universal benefits like energy credits would limit spending on other areas. Perhaps, it would be more prudent to revert to a more standardised budget, focusing on permanent spending and changes in taxation. Yet, there is a likelihood of the Coalition struggling to fulfill everything recently proposed by senior ministers.
The healthy state of Exchequer’s finances lures politicians from all sides to raise the stakes with pre-election pledges. Predictably, budget surplus offer temptation, irrespective of whether they are derived from undependable revenues. However, Ireland’s strong public finances also provide it with a unique opportunity to deal with major issues such as housing, health, and infrastructure in a systematic manner. The challenges include implementing a multi-year approach and, more importantly, ensuring tangible benefits for the public. Remarkably, the main hurdle is not monetary constraints but executing progress.
Undeniably, the path is fraught with political challenges. Alternatively, there’s also the possibility of popular appeal for short-term tax breaks and increased public expenditure.