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From now on, don’t believe anything that anyone says about the budget

Everyone is spinning a yarn ahead of October 1st — as Roy Keane might say, ‘they are only doing their jobs’

Paschal Donohoe, Minister for Public Expenditure and Jack Chambers, Minister for Finance, at the Exchequer Returns presentation, in Dublin. Soaring corporate tax receipts will increase budget expectations. (Photograph: Dara Mac Dónaill / The Irish Times)
Paschal Donohoe, Minister for Public Expenditure and Jack Chambers, Minister for Finance, at the Exchequer Returns presentation, in Dublin. Soaring corporate tax receipts will increase budget expectations. (Photograph: Dara Mac Dónaill / The Irish Times)

I was momentarily miffed a few years ago when appearing on a radio show I was introduced as the “budget veteran”. But of course, this was entirely fair given that the first package I covered, albeit as a junior reporter writing up a few random bits of reaction, was in 1988. Perhaps seeing this many budget processes gives you perspective — or maybe you just end up confused.

Certainly, there is a touch of Bill Murray’s Groundhog Day in the similar if slightly different way things play out from year to year. All the actors are now falling into familiar roles. It is best not to take anything they are saying too seriously from here on in.

We are now in the “stern warnings to ministers” phase as the Central Bank of Ireland and — in more recent years — the Fiscal Advisory Council – call for prudence. Those issuing these statements know full well that they will be either ignored or at best have a limited impact on the outcome. As Roy Keane might say, “they are only doing their jobs”.

Warnings of the arrival of the “wolf” in the shape of a possible collapse in corporate tax receipts have been made since about 2016. During that time revenue from this source has expanded close to fivefold. The only credible conclusion is that Ireland is exposed to multinational fortunes and decisions on a range of fronts — tax, jobs, spending — but trying to calibrate this is probably a waste of time.

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Another surge in corporate taxes shown in official figures this week will, of course, send Cabinet pulses racing. It ups the ante in the talks on the summer economic statement, due next week, which will be the first indication of the scale of the package. It will outline the level of planned permanent changes in spending and taxes for 2025.

It will be best to watch what people do, rather than what they say, as we move into the next and crucial phase of jockeying and kite flying. Jack Chambers and Paschal Donohoe, the two budget Ministers, are forced to face a few directions at once. They have to tell the public they are doing a great job and everything is fine and tell their Cabinet colleagues that big dangers are lurking and they must not go mad. They have to proclaim adherence to the rules when everyone knows that there is zero chance that Government spending next year will be held within the 5 per cent spending limit. They, too, will only be doing their jobs.

There is no chance of spending growth in 2025 staying under the 5 per cent limit and there is a fair chance that the summer statement will show that it will exceed 7 per cent. Two big indicators show why. Already big increases in State investment spending are pencilled in — €1.5 billion has already been added to plans here for next year. And we know that health spending is overrunning by a whopping €1.1 billion. Donohoe is trying to do a deal with Minister for Health Stephen Donnelly on how this will pan out for the rest of the year, but the risk of a €2 billion-plus health overrun for the full year, with big implications for the 2025 budget, are real. Something will be hammered out here before the summer statement. We will be told it is all sorted but of course, we have heard that before too.

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So how do we look behind all the noise? The budget is in surplus — to the tune of €8 billion-plus this year on current forecasts — and will stay in the black. And Donohoe and the now departing Michael McGrath put in place two new funds to help pay for future spending, into that €6 billion will go next year. These two things take cash off the budget table and reduce the risk of a large giveaway, as well as cutting the chances of another boom-to-bust cycle in the public finances.

In this context whether permanent spending increases by, say, 6.5 per cent next year or 7.5 per cent next year may not make much difference. What is important, however, is that this will add to the big spending increases we have seen in recent years and the cumulative rise is now very significant. Spending is up by one-third since before the pandemic. There are real questions here about the value Ireland is getting — an official paper published last week showed, for example, that health spending here is now high by international standards — 28 per cent above the Organisation for Economic Co-operation and Development average. But are we seeing commensurate increases in services?

The State is right to plan to invest in housing, infrastructure, schools and hospitals but its ability to do this efficiently is at issue. It is in the choice and design of these programmes and their delivery that future risks lie both to the public finances and the economy as a whole. Nor are the State finances set up to reflect these risks or the possible liabilities involved.

And there is a final point, too, as we await the summer statement. In terms of the overall budget arithmetic, this is a two-act play. The statement outlines the planned changes in permanent tax and spending measures, though not, of course, the measures themselves. But in recent years we have also seen a whole range of temporary payments to households and businesses due to Covid, the cost-of-living crisis and the arrival of people fleeing the way in Ukraine. These are only agreed in the run-up to budget day itself and — as they were presented as “once-off” — are not even accounted for in the summer statement.

Repeating these measures is not justified. Less well-off households need permanent supports, not temporary handouts. Housing costs for refugees are now ongoing and not “once-offs”. The bulk of people are doing fine and do not need extra energy credits or double weeks of child benefit.

Chambers has made the right noises in talking about the return to more normal budgeting. But, along with Donohoe, he will face pressure from within Cabinet to butter up the electorate. If another couple of billion is spent on these kinds of measures on October 1st then it can rightly be dismissed as a wasteful and irresponsible budget.