The Coalition, it seems, can’t help themselves. There will, Taoiseach Simon Harris confirmed this week, be a cost-of-living package in the budget. What this means is that some of the laughably-titled “once-off” payments made since 2022 to compensate people for the surge in energy prices and the cost-of-living crisis will be repeated.
This is dressed up in statements about hard-pressed families, but it is clear what is really going on. There is a general election coming and the Government cannot resist handing out more cash to try to persuade voters to support them. There is a case to be made for spending more public money in some areas. But not this way.
To understand why this is happening, it is necessary to look at the peculiar compromises of Irish budget-making. Once-off payments were a legitimate part of the policy response first to Covid-19 and then to the cost-of-living crisis. They helped families and businesses facing a big shock to their incomes.
The cost-of-living measures started in 2022 and continued through 2023 and into this year. There they would end, were the indications from the Department of Finance and Public Expenditure earlier this year.
Is help-to-buy a vital support for house buyers or is it just pushing up prices?
Ireland’s disease of high prices is getting worse – has the Government added €1,000 to your household bills?
Our population is booming, but can the State cope?
What might the economic battle between Trump and Kamala Harris mean for Ireland?
But no. The Government will go again in the October budget. We don’t know precisely how. But while there may be a case to repeat supports to less well-off households – though permanent measures would be preferable at this stage – there is no valid argument for a re-run of the much more costly universal measures, such as energy credits on which a whopping €2.5 billion has already been spent giving cash to all households by cutting bills. Many simply do not need the help. Some will not even notice.
There are better ways to help families and parents than simply throwing out cash. But the Coalition has noticed these payments were popular. Free money usually is. We were told in the Summer Economic Statement that there would be a budget package of €8.3 billion. But in reality it will be bigger.
The Coalition is planning to pay more cash out in cost-of-living payments but to do so in the final months of 2024. This would reduce the 2024 budget surplus, which is being supported by rising tax receipts – though under pressure on the other side from overspending. But it would not affect the 2025 figures because the payments are, in theory at least, “once-off”. And so the Coalition will try to hold on to the fig leaf of prudence while still trying to bribe the electorate. So much for their claim that the national finances would not be safe under a Sinn Féin government.
The new Minister for Finance, Jack Chambers, will be persuaded to go along with this on the basis that the payments by their nature do not add to the permanent base of Government spending. The Department of Finance will be unhappy, but officials will have to live with it and console themselves that these are not additional permanent commitments.
And remember that the department’s estimates are that exchequer finances would be in deficit if you subtracted what it sees as the “windfall” element of corporate tax receipts – in other words the bit that does not relate to economic activity in Ireland.
Wear thin
This “windfall” argument is starting to wear thin, of course, with corporate tax receipts having more than doubled since before the pandemic. But it means that, in some ways, the public has the worst of both worlds. An argument could be made to make permanent commitments to address key areas of deprivation and adjust the level of State services to a rising population. But there is a lack of confidence to do this, because no one knows what will happen to corporate tax.
And so the compromise is that the politicians get their way via once-off cash payments – most with zero longer-term benefit – but the budget departments argue against more permanent commitments, for fear of leaving the exchequer finances exposed.
The Irish Fiscal Advisory Council is worried about the underlying trends, pointing in a series of tweets this week to the latest exchequer returns showing spending so far this year to be a full €2 billion above expectations, with overruns not only in health but “across the board”.
Minister for Public Expenditure Paschal Donohoe and Minister for Health Stephen Donnelly have committed to getting health spending back closer to budget, but experience would suggest we should be sceptical. Not only is the Government going for another wad of once-off household supports, it is also struggling to keep permanent spending under control.
Personally, I would not worry too much about keeping the annual increase in spending strictly under the 5 per cent ceiling set by the Government, and broken ever since. But there does need to be a limit and budgets that are adhered to. And if the excess over the 5 per cent is due to overruns which are not delivering better services, that is the worst of both worlds.
The planned increases in State investments in areas like housing are badly needed, but there are concerns about what it can deliver with the long-planned reform of planning not delivered and costs running ahead strongly.
A repeat of the universal supports such as energy credits now risks such payments becoming semi-institutionalised like the (entirely justified) bonus welfare week paid at Christmas. Experience would suggest that, sooner or later, all this will not end happily.
Off the table
Fortunately, there is €6 billion in cash being taken off the table for the next budget and put into two funds to support future spending. But such is the buoyancy of tax revenues that there is still more cash to spend.
In my view it would be better to spend a few hundred million extra on improving vital supports in areas like childcare and education and help families this way – especially those in most need – rather than lash out more once-off payments to everyone.
The Department of Finance will run a mile from this, saying we cannot take on more permanent commitments. And so it will not be part of the compromise which emerges in the months ahead. But we need to have some longer-term legacy for the extraordinary period of buoyancy we are now seeing in the public finances.
Once-off payments had their place during the energy crisis – in the round they supported lower-income households more. But by Budget 2024, the Government should have known better than to go again with another round of energy credits and other universal supports. It should have concentrated its fire on those who needed it.
Now, to ensure more households do not feel worse off in cash terms, it looks set to go ahead again and splash a lot of cash in Budget 2025. But the point is that with inflation falling, energy prices down and incomes rising, most households are now better off.
That doesn’t mean many are not still feeling the pinch, they are. But just throwing out temporary payments every year is not the way to address this. It is not a budgetary strategy. Though, of course, it may well be seen as a political one.
