The Government has scope for a once-off package to address the energy crisis costing well more than €3 billion this year, pre-budget figures published on Saturday indicate. Strong tax revenue growth means that before any budget-day measures, the budget surplus of tax over spending this year is now estimated at more than €4.4 billion. Most of this will be spent on once-off welfare measures and energy supports to households and businesses, with the remainder put aside in a contingency fund for 2023.
The pre-budget White Paper estimates that corporation tax will bring in €21 billion this year and an estimated €22.7 billion next year, a key factor in the room for manoeuvre to bring in once-off measures to address the energy crisis. These are expected to include a range of special welfare payments this year to support less well-off households, an extension of tax cuts on fuel and a package of supports to businesses.
With negotiations on the shape of the budget package continuing this weekend and tension on spending continuing to brew within Cabinet, the Department of Finance has sent a clear message to spending Ministers on the potential volatility of corporation tax. Calculations included in the White Paper for the first time show that if what the department estimates is the windfall element of the corporation tax haul were removed, the expected surplus this year of €4.4 billion would turn into a deficit of €4.5 billion.
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The White Paper estimates that before any budget measures, continued strong tax revenues next year would lead to an exchequer surplus of €11.8 billion. This forecast will be sharply reduced on budget day, when a package of €6.7 billion in permanent tax and spending changes has been signalled. Ministers will have to decide this weekend whether to stick with the €6.7 billion figure or allow some leeway given the strength of the forecasts.
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In a comment on the White Paper figures, Minister for Finance Paschal Donohoe said that the strong surplus this year will allow funding for “a broad package of once-off measures in Budget 2023 to support citizens and businesses with the real challenges they face due to rising prices”. However, he added that given the economic risks that lie ahead, “it is appropriate to keep part of the surplus in reserve to respond to other challenges that may yet come”.
With indications that the package of once-off measures may now significantly exceed €3 billion, the Government will have scope to allow special once-off welfare payments in a number of categories, in addition to the normal Christmas double payment and on top of new energy credits for all households. Meanwhile, intense discussions will continue over the weekend on permanent spending measures, including the normal welfare increases and spending on the health service.
The White Paper shows an expected rise, before budget measures, of just under 8 per cent in total tax revenues next year to €87.9 billion. As well as the strong trend in corporation tax, income tax receipts are expected to rise from just more than €30 billion this year to more than €33.2 billion next year. This will be reduced on budget day as the Government is expected to announce increases in tax credits and allowances and in the standard rate income tax band.
The updated economic forecasts on which these figures are based will be published next week. Inflation, through its impact on wages and indirect taxes, does benefit the exchequer, but threats to economic growth from the cost-of-living crisis could have the opposite impact and hit revenues.
Senior Government sources say that while it is essential to respond to the energy crisis now, the Government also needs to be sure it has the scope to do more next year if needed, given the risk that energy prices will remain high, putting ongoing pressure on households and businesses.
