Will Government’s Budget 2023 splurge work?

There are three basic questions you might ask of Budget 2023. Does it keep the public finances on a sustainable path? Is it a wise use of public resources? And in the current circumstances, will it add to inflation?

Ministers Paschal Donohoe and Michael McGrath appear to be keeping to the €6.7 billion budgetary package flagged in the Summer Economic Statement. This comprises a €4.5 billion increase in current spending for 2023, an €800 million increase in capital spending and a €1 billion tax package. There’s also an additional €400 million in current spending earmarked for this year.

While this breaches the Government’s 5 per cent spending rule, it roughly shadows it and more importantly keeps spending in line with the long-run growth potential of the Irish economy (put at 3 per cent) and inflation.

Budget 2022: What to expect

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So on the first count of whether it keeps the public finances on a sustainable path, the answer is, yes. The focus this year has, however, been on the Government’s temporary, and additional, once-off cost-of-living package which is expected to cost about €3 billion.

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It is expected to contain a raft of measures to help offset the inflationary squeeze, everything from energy credits to double welfare and child benefit payments. This is where the questions posed above become more difficult to answer. Broad measures like energy credits are costly and help well-off families as well as poorer households.

The Government will say that there are many middle-income families which earn too much to qualify for supports but which are still heavily affected by rising prices and designing a system that would weed these out from the better-off households would be too onerous. Either way, a lot of public money will go to households that don’t really need it.