The Irish Times view on Budget 2022: all about spending

The annual set-piece that is the budget can often be credited with too much importance. However, it is a key marker of the government’s economic and financial strategy, of its priorities and its vision.

Budget 2022, presented as we hope to be leaving the worst of the pandemic behind, and as the State faces particular challenges in housing and a rising cost of living, is thus a key moment for the Coalition. As the pandemic fades, can the Government grab hold of the problems facing the State at a time when opinion polls suggest public faith in its abilities is slipping?

A plus for Minister for Finance Paschal Donohoe and Minister for Public Expenditure and Reform Michael McGrath is the rapidly improving outlook for the public finances. The supports introduced last year have safeguarded the economy from much of the damage. Government borrowing is to be significantly less than expected, meaning the State will not need to borrow any further to fund day-to-day spending, just capital borrowing. The addition to the national debt from the pandemic remains enormous, but will be a lot less than had been feared.

If economic growth remains strong and if spending stays within target, the public finances can return to a more stable footing. These are both significant “ifs”, of course, though cutting the deficit target and putting more cash in a contingency fund does leave room for manoeuvre.

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The move in recent years towards a bigger role for the State continues in housing, in childcare and in other areas. Political reaction to the budget shows there is no support in Irish politics now for a small State and lower taxes. For now strong growth and rising tax revenues can pay the bills.

But there is no doubt that pressures to increase spending in key areas – and the costs of climate change and an ageing population – will mean more revenues will have to be found in future years. There is an argument to borrow to invest, but not to borrow to fund ongoing new current spending commitments. The Commission on Tax and Welfare, due to report next summer, has a difficult task.

Barring an increase in tax credits and the standard rate band – and a new zoned land tax – this budget was all about spending. The increases in capital spending indicated in the recently revised National Development Plan are included – here the challenge remains to pick the right investments and, of course, to deliver the projects on target. In housing, in particular, this remains a big challenge. Increases in current spending are also significant, particularly in welfare. Given the rising cost of living, increases are appropriate as are supports for those threatened with fuel poverty. Nonetheless the additional cash is limited compared to the rising cost of energy in particular. This will be a key theme moving into next year.