Focus on tackling the cost of living
Tuesday’s budget is expected to be the biggest in several years, with tackling the cost of living the number one priority.
Government ministers have promised a multi-billion euro package to ease the pressure. Some measures will take effect very soon after Budget Day and others will take effect in the New Year.
One of the main objectives is to partially reduce the rise in energy bills thanks to numerous new aids to help households and businesses.
The political battle lines have already been drawn with many opposition parties, including Sinn Féin, insisting that capping bills is the best approach as it provides certainty for consumers. However, the government criticized this measure as akin to a blank cheque.
What is different about this budget is that it will be divided into two main parts. There are the usual tax and recurrent expenditure measures covering new initiatives and the rising costs of operating existing public services which are also affected by inflation.
Alongside this, a set of specific cost-of-living measures made up of one-off supports. The aim is to target aid without incurring additional payments for future expenditure.
This would give the government the flexibility to add more next year, if needed, while easing the burden on public finances.
The policy focus will be on the size of the cost of living package and whether it is targeted enough. The price has risen sharply from an initial expectation of €1 billion, then €2 billion and now around €3 billion.
All in all, it is one of the largest budgets in quite some time as the government grapples with the blow of inflation. He also wants to see the political threat posed by the cost of living crisis – seen as a boon to the opposition.
Here are some of the changes expected so far, with details still being finalized.
MAIN BUDGET 2023
Recent budgets have introduced gradual increases to the point where people are paying the highest tax rate. A similar move is expected this year. This would see the current standard rate band increase from €36,800 for a single person to a similar rise for married couples and civil partners. Tax credits are also expected to be increased.
Tánaiste Leo Varadkar launched a budget kite earlier this year on the possibility of a third tax rate of 30%. While this is under consideration, it will not be part of the next budget as it would involve a major overhaul of the system.
The government’s sellout will be that increasing tax brackets and credits will put more take home pay in people’s pockets. The question is whether this year could see a bigger-than-usual rise in tax brackets given the pressure of runaway inflation.
On USC, there will likely be an increase in the lower brackets to ensure those who get the new, higher minimum wage rate stay off the top tax rates.
In April excise duty on petrol and diesel was reduced by 15c and 10c. This is in place until October 11. It should be extended for several months.
Alcohol and beer
Last year’s budget brought in 50 cents more on a pack of 20 cigarettes, although alcohol escaped any price hike. It is not yet known whether the old reliables will be affected in the 2023 budget.
There have been repeated calls for a €15 increase in weekly payments to help the most vulnerable cope with rising prices. It is now believed that an extra €10 is more likely.
This will help limit increases in recurring expenses. The sweetener is likely to be highly reported double payments for many aids, including Child Benefit. These will form part of the cost of living.
Reducing the cost of childcare was hailed as a major coalition ambition.
Children’s Minister Roderic O’Gorman has pledged to cut parents’ bills in half over the next two budgets. The costs will be subsidized by the National Childcare Scheme.
It has been speculated that the fee could be reduced by 25% next year, but the exact reduction has yet to be agreed. Parents should see reductions in their monthly bills a few months after the budget.
Tourist VAT rate
The hospitality sector campaigned for the maintenance of the reduced VAT rate of 9% which is due to end in February. It is understood that this is still under consideration.
Faced with soaring rents, tenants are likely to benefit from a new tax credit. It was a feature in the past, but it was removed in 2017. However, the exact figure is still under negotiation.
The picture for owners seems less clear. Lobby groups have argued for a reduction in tax payable on rental income to keep small landlords in the market. Politically, however, it is a harder sell depending on whether it can be calibrated to avoid accumulating additional benefits for large institutional owners.
Housing Minister Darragh O’Brien has publicly stated that he would like to see the Home Buyer’s Aid scheme extended beyond the end of this year.
The initiative is designed to help first-time buyers finance their housing deposit. It is believed that any expansion would cause the scheme to shrink as it has been criticized in the past for not being targeted enough.
Higher Education Minister Simon Harris is calling for an expansion of scholarship eligibility. This would come into effect next year.
Government leaders have repeatedly said they want to introduce a windfall tax on the superprofits of fossil fuel and renewable energy producers.
These producers take advantage of exorbitant gas prices. However, he is awaiting clarification from the European Commission on his proposals and what this would mean for Ireland. This is unlikely to be clear by budget day.
COST OF LIFE
Government ministers have pledged immediate relief in this year’s budget and the cost of living package will contain these supports. Rather than waiting until January 2023 or later, households and businesses will receive this assistance by December.
Help paying energy bills will be a big part of the package. It now seems certain that the government will go the route of more energy credits rather than capping bills as proposed by Sinn Féin and others.
Current expectations are centered on three additional credits spread throughout the winter. At least one of them will happen before Christmas. They may be worth €200 each but the numbers are not definitive.
Additional fuel allowance payment or increased eligibility is also under consideration.
On the welfare side, in addition to increased rates starting next year, it is expected that there will be double payments soon after the budget. This is likely for many weekly payments, including state pension as well as monthly child benefit. This is in addition to the usual Christmas bonus.
Tánaiste and Enterprise Minister Leo Varadkar said his ministry was working on three measures to help businesses.
The European Commission has already approved two of them – low-cost loans and grants for manufacturers and exporters who have seen their profits decline.
The third element, however, is aimed at the greatest number of SMEs to help them pay their energy bills. This would be a broad measure applying to the retail, hospitality and leisure sector.
However, this turns out to be difficult to write. Mr Varadkar said this could possibly take the form of a lump sum check or a discount on bills. Another area being explored is a possible clawback for companies making big profits.
Farmers will also benefit from these schemes according to the Tánaiste.
Higher Education Minister Simon Harris is calling for a reduction in the current third tier fee set at €3,000. The intent is for any reduction to take effect for the current academic year so that it is considered a cost of living measure.
From April, public transport fares have been reduced by 20% until the end of the year. The Green Party has lobbied the government to keep these lower fares in place longer as an environmental measure.