Another giveaway budget is in prospect later this year after the Government presented updated economic forecasts on Tuesday which showed huge surpluses expected in the public finances in the coming years.
The continuing growth of corporation tax receipts will deliver a cash pile to the Coalition as it prepares for an election in the second half of next year or in early 2025, the figures show.
The document – known as the Stability Programme Update, which is required by EU rules – shows that the Government expects an exchequer surplus of over €12 billion next year. When other factors – including a large surplus in the social insurance fund – are added, the general government balance next year is projected to be as high as €16 billion.
Last year, between recurring spending commitments and one-off giveaways, the Government was able to deliver a budget day package of more than €11 billion. The figures published on Tuesday show that Ministers are likely to be in a position to repeat that giveaway this year.
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However, both Minister for Finance Michael McGrath and Minister for Public Expenditure Paschal Donohoe were at pains to play down talk of big budget giveaways at the announcement of the results.
They warned in particular of the unreliable nature of much of the corporation tax receipts and the danger of building recurring spending commitments on the back of revenues that may be temporary.
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“Half of the corporation tax receipts are windfall in nature and we can’t rely on these,” Mr McGrath said.
Officials in the Department of Finance now say that up to €12 billion of the expected €24 billion in corporation tax receipts this year could potentially disappear in future years.
In addition, the Department of Finance chief economist, John McCarthy, warned repeatedly of other “downside risks”, including inflation, financial sector turbulence and escalation of the war in Ukraine.
In its Stability Programme Update document, the department noted that energy prices had in recent months reversed more rapidly than previously assumed “and, on this basis, headline inflation is now on a downward trajectory”.
Headline inflation in Ireland is projected to fall to 4.9 per cent this year, further moderating to 2.5 per cent next year.
However, the department cautioned that core inflation, which strips out energy and food prices, could prove “stickier” and more durable than previously anticipated.
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“Given the tight labour market, there is a risk that wage growth could prove higher than anticipated, triggering second-round effects and stalling the anticipated easing of headline and core inflation over this year and next,” it said.
But, privately, senior political sources acknowledge the pressure for big spending increases from their colleague Ministers, and from party leaders eyeing a general election, is likely to be intense.
The Government will host the national economic dialogue with business groups, trade unions and other stakeholders before the summer to gather input ahead of the budgetary process. Initial talks with the public sector unions are also likely before the summer as part of efforts to agree a new national pay deal for public servants before the current agreement lapses in the autumn. With the Government sitting on large surpluses, the pressure from interest groups is likely to be intense.
