Taking an overly cautious approach in the next budget could push people into poverty and be seen as a conscious decision to reduce citizens’ living standards, Taoiseach Leo Varadkar has said.
Speaking at the National Economic Dialogue at Dublin Castle, where various stakeholder groups and representative bodies are outlining their Budget 2024 demands, Mr Varadkar also said one-off emergency measures are “not a long-term solution”.
While Minister for Finance Michael McGrath and Minister for Public Expenditure Paschal Donohoe told reporters that the forthcoming budget would be “prudent”, Mr Varadkar said it is possible to balance all demands including increasing public spending, reducing income taxes, reducing the national debt and creating a savings fund.
Speaking at the opening of the gathering, Mr Varadkar said that while it is the Government’s job to manage risks, “what I’ve learned in 12 years of Government is that there can be a cost to excessive caution and that pessimism bias is as much of a risk as optimism bias”.
Budget 2025 main points: Energy credits, bonus welfare payments, higher minimum wage and tax changes
Budget 2025 calculator: How this year’s budget will affect your income
Most-read: The top 10 business and personal finance stories of the year
Renters and households with children most likely to have income that doesn’t match needs - ESRI
“If the Government takes an overly cautious approach in dealing with the cost of living crisis and the climate crisis, it is making a conscious decision to reduce living standards and to do less,” he said. “And that’s not something we should stand over given our fiscal position. Having said that, we have never, nor will we, use temporary revenues to fund permanent or occurring day to day spending. We have to be careful not to do that.”
He added: “We have a responsibility to take decisive action on behalf of our citizens. An overly cautious approach could push more people into poverty or financial distress.”
Higher tax rate
The Fine Gael leader once again said the budget will lift the point at which people pay the higher rate of tax and that there will be a “substantial welfare and pensions package”, although he indicated it would not be exactly similar to last year’s mix of €12 weekly payments and once-off lump sums.
“We will have to do a series of increases again, but perhaps will have to take a different approach,” he said, adding that while “one-offs have their place”, they “are not a long-term solution”.
“Inflation is moderating, and some prices will fall, but are unlikely to return to what they were. Energy costs in particular will remain very high in the winter and energy poverty is very real.”
Asked later if he was cooling off on the idea of one-off emergency payments, he said this would be “an over-interpretation.”
“There is room to do both. But as I said, when it comes to all of these decisions, it is the quantum and the split.”
Housing target
The Taoiseach also indicated that the capital spending ceilings laid out in the National Development Plan would be increased, and housing targets will also be increased. This could see an increase from the goal of 33,000 new homes a year to 40,000.
While Mr Varadkar said the Government is “very much aligned” on its goals for Budget 2024, the Minister for Finance Michael McGrath and Minister for Public Expenditure Paschal Donohoe said they were advocating a “prudent” approach.
“It will be a prudent budget, but it will also seek to respond to the pressures that are there, but it will be within certain parameters,” Mr McGrath said. “And one of those parameters is not using windfall volatile receipts to find permanent measures. That will be one of the anchors of this budget.
Vulnerabilities
“While the headline position in the public finances is particularly strong, we’re all acutely conscious of the underlying vulnerabilities and the fact that about half of our corporation tax receipts are deemed to be windfall in nature. It does open up risks and that’s why we need to be careful about the choices that we make.
“The amount of windfall and corporation tax receipts that we expect to collect this year is greater than the projected surplus. So actually when you take out the windfall receipts this year, we don’t have a surplus,” Mr McGrath added.
Echoing his comments, Tánaiste Micheál Martin said: “I think we have to be sensible. The word cautious, prudent, they are all bandied about. The bottom line is we have to be sensible and sustainable and we have to protect the economy. We have to also be alert for shocks. We do have to be very conscious of a very worrying unstable global situation.”
Asked whether Budget 2024 would be an election-focused giveaway, Mr Donohoe said: “This Government has a full mandate to serve, and there is a long way to go before we get anywhere near a general election. But I happen to believe that making the case for not spending money that we might not have tomorrow has a political appeal. I also believe that making the case for managing our public finances with care also has value.”
