Last year’s budgetary process was overshadowed by the Covid-19 crisis and the Government’s dramatic rejection of Nphet advice to lock down for four weeks, a decision it would end up revisiting four days after Paschal Donohoe and Michael McGrath made their Budget speeches in the Convention Centre.
his year the Finance Minister and the Minister for Public Expenditure and Reform, are to deliver their speeches in the Dáil chamber in Leinster House as the Covid crisis appears to have passed its most acute phase.
Indeed their announcements on Tuesday are expected to confirm much of the contingency spending brought about as a result of the pandemic is being wound down.
This has had its own impact on the Budget talks in recent weeks as ministers’ and their department officials’ desire to maintain some Covid-era spending has been met with a firm ‘no’ from officials in the Department of Public Expenditure and Reform, with McGrath very much aligned with the views of his mandarins in the department.
While Covid has receded from the news agenda, recent days have seen headlines dominated by other issues; the €165bn National Development Plan (NDP) has been one and the historic move to increase our corporation tax rate was the other. The days of finance ministers boasting in their budget speeches about the sanctity of Ireland’s 12.5pc rate are over.
But the more practical effect of these dominating issues has been the tricky nature of organising actual Budget meetings with McGrath and Donohoe as they grappled with capital spending and corporate tax respectively over recent weeks.
Nonetheless most departments are now settled on their Budget spending plans for next year with only a few holdouts this weekend, including the Department of Education. McGrath and Donohoe met the three Coalition leaders, Taoiseach Micheál Martin, Tánaiste Leo Varadkar and the Green Party leader Eamon Ryan, last night to apply the finishing touches.
“There are some robust discussions going down to the wire,” one Government insider said yesterday. “There are a few problem areas being ironed out.”
However, there was a major boost delivered to the Government on Friday night when the annual white paper published by the Department of Finance confirmed that a record corporation tax take and an underspend by some departments will deliver a much lower deficit — €13.2bn — than had been expected as a result of Covid. Previous forecasts had put the expected gap between spending and revenue at €20bn.
Despite the good news, Government sources signalled yesterday there were no plans to change the overall shape of the Budget.
The white paper sets out the public finances this year and next before any new spending or taxing decisions are taken on Budget day. Its publication late on a Friday is a slightly arcane way of doing things that has survived the general overhaul of the budgetary process in recent years.
For example, one reform saw the parameters around new tax and spending measures set out months ago in the Summer Economic Statement, with €4.7bn being split in favour of extra spending.
Of this €3.2bn is going to meet existing levels of public services, including demographics and public service pay increases as well the capital expenditure increase agreed by the Coalition in July and given life in the NDP published last Monday. This leaves €1.5bn, a third of which has been allocated for tax measures and €1bn for new spending.
As the shape of Budget 2022 is emerging this weekend, among the big winners is said to be Children’s Minister Roderic O’Gorman who has secured a package of upwards of €100m. Included in this is a new scheme giving childcare providers access to funding for improvements to staff pay in return for a commitment that parents’ fees will not increase.
The effective freeze in childcare fees will be welcomed by parents, although they are still paying punitive monthly rates. O’Gorman, the Green Party TD, will however pitch this as just the start of his plans to overhaul the sector.
“He’s a good minister. He does his business well. He’s not a gimmick merchant,” one non-Green Party figure involved in the budgetary process said. “He came with a well thought-out plan which will ultimately be part of a multi-year improvement for childcare. It will be a big boost for the sector.”
The Greens are likely to sell this as a big win for them but all three Coalition parties will want to own the issue.
Fine Gael TD Alan Dillon said: “When you look at availability and affordability we’ve absolutely dropped the ball in terms of where we need to get to: they got nothing last year; this year they can’t afford not to get anything.”
Fianna Fáil TD Paul McAuliffe issued a statement yesterday saying it was time programme for government commitments were “acted upon and the State introduced a universal childcare scheme that is affordable for families and delivers better conditions for the childcare providers”.
Elsewhere there will be an extra €120m given to Green Party leader Eamon Ryan’s Environment and Climate department to accelerate retrofitting in the face of rising energy bills.
Tourism Minister Catherine Martin has secured a €100m tourism recovery package that will include tens of millions for more tourism business continuity schemes as well as a significant tourism marketing plan.
The Green Party deputy leader’s officials are finalising a new national tourism action plan. The new funding will also be used to invest in festivals and nightlife events and activities — all of which were severely disrupted by Covid-19.
The rising cost of living will be a big focus of the Coalition’s Budget day messaging.
Social Protection Minister Heather Humphreys has secured a €5 increase in the weekly State pension — the first in two years — while a similar rise in all other weekly welfare payments is expected.
The measure will cost €350m and will take effect from January — and not April as has been the case in previous budgets when the Government decided to increase welfare payments across the board.
Humphreys, a Fine Gael TD, might have hoped to go further than €5 — that was certainly the desire of some in her party and in Fianna Fáil.
But the parameters were limited and €5 is the most politically palatable for all given the toxicity associated with former social protection minister Joan Burton’s €3 increase to the pension in Budget 2016 — an increase slammed as so miserly at the time by Fianna Fáil it formed part of their general election messaging that year.
There will be an expansion of the school meals scheme and an extra two weeks of parental leave.
Details of changes to the fuel allowance are still being hammered out this weekend with debate over whether to increase the weekly rate by €3 or €5 and how exactly to widen eligibility for the payment.
Increases in the fuel allowance will in part be paid for via the carbon tax which, in line with the Finance Act passed last year, will go up by €7.50 per tonne this year and every year to the end of the decade. This adds just under €1.30 to a tank of petrol and just under €1.50 to a fill-up with diesel.
The tax package of €500m is expected to go primarily towards honouring the programme for government commitment to index-link tax bands and credits so workers are protected from inflation and receive any pay increase or increment they get next year.
Donohoe is also working out the details of a new tax to replace the vacant site levy.
The measure was hinted at in Housing Minister Darragh O’Brien’s Housing for All plan published last month.
But the detail emerging this weekend is that the tax measure — the collection of which will be led by Revenue to ensure compliance — will likely penalise land hoarding or speculation by targeting land that is zoned and serviced or serviceable for housing.
This potentially could affect approximately 8,000 hectares of residential land — enough for an estimated 320,000 homes. Farmland around commuter towns, vacant yards in towns and cities, and strips of land for mixed, residential and commercial use are all within the scope of the new measure.
“There are a lot of activation measures in Housing for All,” one Government source said. “Measures like this are a bit of a stick. It is still being worked through but the one thing you can say is the vacant site levy didn’t work, so this is new.”
On the capital spending front, O’Brien has secured an extra €600m for next year. Housing is again seen within government as the big winner when it comes to money.
But delivery on housing and many other issues is all voters care about and Tuesday’s Budget announcement is unlikely to assuage broader concerns among the electorate about the capacity of this coalition to do all that it has promised.