Budget 2024: how much longer will the public finances allow these massive packages?

The huge surge of tax revenue in recent years has allowed for some really big budgets – and we now have another.

The €14 billion Budget 2024 package involves another big spending package that offers payouts to households not far off those of last year – and, in the case of some mortgage holders, a good deal more.

Such is the current strength of the public finances that the two budget Ministers have been able to face both ways at once, spending lavishly while also playing the prudence card by announcing the establishment of two new funds to support future investment and general spending.

How long the health of the public finances will allow budgets on this scale – meeting perceived political needs while also salting cash away – very much remains to be seen.

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We can now see how the budget negotiations played out. Minister for Finance Michael McGrath and Minister for Public Expenditure Paschal Donohoe got Cabinet agreement to keep permanent tax and spending changes within tight enough limits – and to establish the two funds. This was the prudence play.

But the political quid pro quo was a bidding up of the once-off measures to benefit households, including energy credits of €450, double weeks for child benefit and welfare and tax relief for mortgage holders. Along with cash required to house Ukrainian refugees, the forecast for the budget surplus next year has fallen from more than €16 billion earlier this year to €8.4 billion now. How quickly these numbers can change. The cumulative surpluses out to 2026, estimated earlier this year at €65 billion are now estimated at €46 billion.

The mortgage scheme, called for by Sinn Féin for some time, was initially resisted by the Government, which has now changed tack. The political problem is going to be that while some will benefit significantly, others will not, such as people coming off fixed rates early next year.

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The Government has opened Pandora’s box here. It will come under pressure to extend the criteria and the chances of the scheme being restricted to one year look slim.

Also, like the energy credits and the double child benefit, the universal nature of the payment means that a lot of cash will go to households who do not need it, including many older, better-off tracker holders well into their mortgage.

And how are we now to define the “once-off” payments which are now recurring? If gas and electricity prices remain high, are energy credits now a permanent feature? And if so what should and should not be counted as part of the permanent spending base?

The budget Ministers will argue, correctly, that these payments can be phased out as the cost-of-living crisis eases. But political pressure to continue many of them will be immense. Like the 9 per cent VAT rate for hospitality, they will die slowly over many years.

The context of all this is that the budget sums are likely to tighten in the years ahead. The corporate tax bonanza may not collapse, but it is very unpredictable and surely unlikely to continue growing and the latest official forecasts see it topping out in 2025. Big bills are coming down the road from the climate transition and an ageing population.

[ Budget 2024 calculator: How this year’s budget will affect your disposable income ]

The costs coming down the road were also behind the decision to establish the Future Ireland Fund and the Infrastructure, Climate and Nature Fund. The first is designed as a longer-term fund which could, the Government says, in time reach €100 billion. The interest from investing it will help to fund the exchequer in the years ahead.

The second fund, capped at €14 billion, is intended to support State investment if tax revenues come under pressure and to support climate investment.

Budget 2024: What it means for households and businesses

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If written tightly in the legislation, the obligation to pay money into these funds every year – upwards of €4 billion to the longer-term fund and €2 billion to the infrastructure one – will be a constraint on future budgets, limiting what can be done elsewhere.

There will be “outs” if pressure comes on the public finances and it remains to be seen how long big surpluses persist, allowing money to be put aside. Future governments may not have similarly larger surpluses to play with and so whether to keep contributing to the funds could become a big political issue in the years ahead.

The concept of not spending all the excess corporate tax revenues and putting some of them away is the correct one. How long the excess revenues allow for this to coincide with generous budgets is unclear. Economic growth is slowing, after all and the post-Covid bounce is over. But the prospect of having some significant cash saved from the surpluses of the next few years is welcome.

For now, the Government is trying to “have it all”, both saving and spending. The budget was clearly constructed with more than one eye on the next general election. One more package may, or may not, take place before voters go to the polls.

The Coalition reckons that the big once-off payments made last year went down well with voters. Ministers make the point that living standards on average may rise again next year, after the sharp falls due to the cost-of-living crisis.

And they have tried to close off some targets for Sinn Féin, notably via the mortgage scheme. Irish politics is currently floating on a sea of corporate tax receipts, allowing key trade-offs to be ignored.

It is impossible to say whether this will be the last budget of this public finance boom but there are enough warning signs around to suggest that future packages will involve a lot less leeway.