We are in peak budget season, as speculation mounts about what will feature in next Tuesday’s package. But what is important and what is just Budget Day noise? Here is a guide to what to focus on – and what you should ignore.
1. Keep it in context
The budget is important. It is the key statement of the year in terms of the public finances. But total government spending next year will be more than €95 billion and the permanent changes in spending in Budget 2024 will be just €5.3 billion. Of this amount, some €2.3 billon is already effectively allocated to pay for the full-year cost of measures in the last budget, the increasing and ageing population and meeting public sector pay commitments, the latter still to be settled in talks later this year. And another €1 billion is set aside to boost State investment. So the additional cash available for permanent Budget Day changes in areas such as welfare, childcare and health is only around €2 billion – and spending pressures in health complicate the issue.
There will be more money spent on once-off measures – which we will return to below.
Meanwhile, taxes are due to be reduced by €1.1 billion as part of the package – while total revenues this year will amount to around €90 billion. So budgets are important, and also send out vital messages on the public finances, but the vast bulk of tax and spending carries on regardless.
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
Costing the election manifestos: Making sense of the billions being thrown out by parties to win your vote
VAT cuts for restaurants were a bad idea last month. Why are they a good idea now?
2. When is a tax cut not a tax cut?
Nowhere is budget spinning more intense than in the area of tax. A net reduction of €1.1 billion is planned here. This will come through a mixture of increasing tax credits, pushing up the income level at which the higher 40 per cent income tax rate kicks up and some USC reductions, possibly including a cut in the main 4.5 per cent rate – which applies on incomes between about €23,000 and about €70,000 – to 4 per cent.
Remember that the €1.1 billion is a net figure, so additional taxes raised elsewhere, such as via a renewal of the bank levy or the full-year impact of ending the 9 per cent VAT rate for hospitality, could allow a bit more to be directed to income tax reductions.
But with wages increasing, income tax credits and bands need to be adjusted anyway, if the tax burden is not to rise. In other words income taxes need to be adjusted for inflation. It would cost between €1.2 billion and €1.3 billion to make this adjustment, so the scale of the cuts introduced may be just about around this level.
The tax changes in the budget will, of course, leave you better off than if they had not happened. And they will be trumpeted by Ministers as a big concession. But in these inflationary times they may just ensure that for many the actual burden of income tax does not rise, as higher wages would otherwise lower the real value of tax credits and push more income into the higher 40 per cent income tax band.
3. When is a spending increase not a spending increase?
Inflation also has an impact on spending. It costs more to provide State services as wages and costs rise. And people on welfare and State payments will see their spending power decline unless their payments rise. This all means that the scope to actually deliver new services via Budget Day spending increases is limited, while a lot of increases in welfare and pensions will be chasing inflation.
This can get complicated when looking at key government services such as health. Here, to maintain existing service levels, spending has to be adjusted not only for rising costs – and technology and new drugs can be an issue here as well as generally rising wages and prices – but also to take account of increases in the size of the population. With a big overrun in health spending this year, it will be interesting to see what emerges on Budget Day and what it means for health spending and health services in 2024.
What will Budget 2024 mean for you?
Cliff Taylor gives his expert view. Presented by Bernice Harrison
4. The once-offs – the Budget Day giveaways
How does the Government cope with the pressure on households from the cost-of-living crisis, while at the same time not making permanent commitments which pose a longer-term risk to the public finances? Welcome to the new Budget Day special – the once-off measure. This featured heavily last year, as the Government introduced €4 billion in new measures aimed at helping households through three €200 energy credits and a range of once-off welfare payments including double payments of child benefit and core welfare supports and special payments aimed at poorer households.
This year there will again be a host of once-offs, though the signals are that with inflation easing, they will cost less than those announced in the 2023 budget package. From the point of view of the budget Ministers, Michael McGrath and Paschal Donohoe, the once-offs will reduce the budget surplus for this year (as some will be paid before December) and in 2024. But they do not involve ongoing financial commitments. Or do they?
With another round of once-offs this year – which also feature in Sinn Féin’s alternative budget – there is a question of such measures becoming a kind of semi-permanent feature of Budget Day, even if the details vary from year to year. Can a payment still be counted as a once-off if it is repeated in two or three budgets? The political problem is that if you cut all the payments, then many households will be worse off, unless there are further big falls the prices in areas such as energy and food.
Like the double welfare week at Christmas, many of these once-offs could become semi-permanent.
5. So farewell to the €65 billion?
Earlier this year, the Department of Finance had forecast a cumulative budget surplus of €65 billion in the years to 2026. But since then. the Minister for Finance Mr McGrath has said this figure will be revised down a bit – in part to take account of the once-off spending measures to combat the cost-of-living crisis and deal with the influx of refugees from Ukraine. The health overrun will also eat into this year’s surplus and general spending pressures, while plans to allocate more to capital spending over the next few years will do likewise. It also remains to be seen what expectations will be written in the figures for corporation tax.
Significant surpluses will still be forecast, but more likely in the €40 billion to €50 billion region. It will be important to watch whether the Government spells out in more detail its plans to put much of this money aside in special funds to invest for the future and also to underpin State investment spending, if the economy and tax revenues slow. These have featured in the pre-budget talks, where some Ministers will be nervous of locking too much away and thus reducing room for manoeuvre, particularly if the Coalition makes it to the 2025 budget which would definitely be the last one before the next general election.
6. The political budget
The Coalition may indeed make it to one more budget, though equally this one may be the last. Either way, it will be intensely political. One flashpoint is the tax cuts, where Fine Gael has tried to “own” the policy of increasing the standard rate tax band to take more earners out of the higher 40 per cent rate, while Fianna Fáil seems to be claiming the USC cut as its plan. There are tensions in Cabinet about everything from the scale of the once-off package, to the new funds for the surpluses, to the shape of future capital spending in areas such as roads. And that’s before we even get to what the Opposition will have say.
