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Budget 2023: Political stakes could not be higher

What can we expect, how should we judge it and what are the politics of a big giveaway in times of such uncertainty and hardship?

This will be the third Budget delivered by the unlimited liability partnership of Michael McGrath and Paschal Donohoe, still, despite the Eurogroup tribulations, the essential axis of Government operations. Photograph: Nick Bradshaw

Pat Leahy's face
Pat Leahy
Sat Sep 24 2022 - 00:01

At 1pm on Tuesday afternoon, the Budget will be revealed in front of a packed Dáil on what is one of the principal political set-pieces of the year. In their budget speeches, the Minister for Finance Paschal Donohoe and the Minister for Public Expenditure Michael McGrath will lay out the tax and expenditure plans for next year, as well as the package of one-off cost of living measures which will be paid out to households and businesses in the coming months. An anxious country will watch on.

Officials are continuing to work in the two budget departments all weekend, and while there has been the usual amount of leaks, spin and speculation in recent weeks, the final details will remain a secret, more or less, until Budget Day itself. Last year, officials and politicians were still in their offices at 1am on the night before the budget, tweaking speeches and calculations.

And yet, we know the two most important things about the Budget already – firstly, that it will be the largest budgetary giveaway ever, pandemic excepted; and secondly, that it will immediately be assailed from all side as not being sufficient.

So what can we expect, how should we judge it and what are the politics of a big giveaway in times of such uncertainty and hardship?

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This will be the third Budget delivered by the unlimited liability partnership of Donohoe and McGrath, still, despite the Eurogroup tribulations, the essential axis of Government operations. Neither of the last two has been a typical budget, and this one won’t be either.

Dealing with crises has become the default setting for governments in western countries; that has entailed borrowing big and spending big. Economies which expected to be returning this year to something approaching normal after a once-in-a-lifetime pandemic now find themselves pummelled by galloping inflation and soaring fuel prices, with an imminent threat of energy shortages.

Ireland is in a considerably better position than many other economies to weather the latest storm. Big increases in spending will be paid for – for now anyway – by economic growth and the surpluses generated by a rapid economic bounceback. The Government is entitled to take some credit for that, but it is still faced with a set on unenviable options. A key marker in this Budget will be whether it continues to plan for a surplus next year.

Tuesday’s announcements must satisfy a range of policy priorities and political imperatives. They must, in the words of Leo Varadkar on Thursday (and every other minister who has fielded a question in recent weeks) “put money in people’s pockets.”

It will do this is a variety of ways, in both the budget proper (which contains the spending increases for next year) and the once-off cost of living measures which will take effect this year. A wide array of options have been tabled, though the final choices will not be made until a meeting tomorrow (Sunday) between Donohoe and McGrath and the three party leaders.

Nonetheless, there is expected to be a repeat of the electricity credit issued earlier this year (worth €200 then), and perhaps a repeated repeat, with further credits signalled for later this year and perhaps next year too. There will be increases in the fuel allowance and in other social welfare rates, potentially a double instalment of all welfare payments in the coming months, including unemployment benefit, pensions and child benefit. (Officials joke that the Minister for Public Expenditure, the father of seven children, is a strong supporter of the last measure).

There will be a package of supports for business, on which officials have been burning the midnight oil for weeks, struggling with the complexity of designing supports that don’t simply channel money to profitable businesses, or businesses that have just passed on the increased costs to their customers, or big multinationals. The guiding principle, say some of the people involved with it, will be to protect jobs, but no more than with the Covid supports, there is hope rather than certainty that the supports will work.

There will be spending increases for all departments – though as usual the big departments will hog the lion’s share of them – and a package of tax changes. This is politically important to Fine Gael, whose leader has been banging the drum on tax cuts all summer. There won’t be a cut in rates, but there will be changes to tax bands and allowances intended to allow middle-income earners to keep more of their salaries.

As is the fashion in all Irish budgets in recent years, the spending increases will dwarf the tax cuts. Of the €6.7 billion earmarked for the Budget proper – that is to say, the Budget for next year, not including the once-off cost of living measures which will take effect this year – there is a billion euros set aside for tax reductions.

Sources with some knowledge of budget discussions late this week suggest that the €6.7 billion ceiling might drift a little higher on the day, perhaps towards €7 billion, but not beyond it. Add to that the package of one-off supports – which several informed sources predicted would comfortably top €3 billion – and you are talking about a total budget day expenditure of €10 billion-€11 billion.

That is, by any standards familiar in this country, an enormous giveaway. But the central question of the budget is: will it be enough? Will it make a significant difference to enough people that it offsets cost of living increases appreciably? That it eases their material hardship – and avoids real political anger breaking out?

“We’ve got to make sure that whatever we do isn’t wiped out by the next ESB bill,” says one minister.

Another person involved adds: “Will the money given to citizens be enough to stop them feeling destitute?”

For Fr Sean Healy of Social Justice Ireland, the test for the Budget is clear and simple: “It will turn on whether the increase in basic welfare rates is €20 or not,” he says.

A coalition of organisations involved in tackling and campaigning against poverty have agreed with the €20 demand, which would be the largest ever welfare increase by far.

“If they don’t do it, it will mean that poor people are being abandoned by the government,” Healy says. “If they don’t do it, they’re not serious about tackling poverty.”

There is, however, little expectation that a €20 rise is on the cards. It’s believed that a €15 increase was discussed, but the cost of this – €1.1 billion – would eat up much of the available space for other spending increases. Ministers all have their own spending priorities, and there was significant opposition to handing nearly all the available resources over to one department – and that’s before the Department of Health weighs in with its demands.

Instead, it is likely that there’ll be a big social protection element to the once-off package announced on Tuesday, while the increase in core rates is likely to be nearer €10-€12 per week. That is unlikely to be welcomed by organisations such as Healy’s. “If they don’t do it, there’ll be a very serious response,” he says.

But there are other constituencies that have to be satisfied, too. Government TDs report the cost of living squeeze is impacting on families normally immune from such pressures.

“Never seen the like of it,” says one TD. “Just hearing it all the time.”

The budget, in other words, will have to have a substantial package for middle income, middle Ireland. That is a political necessity.

Some economists worry that the Government will use all the available resources upfront, when the difficulties caused by inflation could persist well into next year, and possibly beyond.

“It’s not clear how long the energy supports will be needed,” says UCC economist Seamus Coffey. “Will energy prices revert to pre-crisis level? Unknown. Revenue bouyancy is keeping borrowing down but the reliability of that is a bit of an unknown too.”

But this Budget, ultimately, is more about politics than economics. Budget day is one of the few times of the year when ordinary people who do not have a constant interest in politics tune in and listen closely to what politicians are saying – because they believe that what Ministers say and do has a direct bearing on their lives. And they’re right. Budget 2023 is likely to be the most important one this Government delivers.

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